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Constitutional challenges to the Telephone Consumer Protection Act may be coming to a head. In a series of rulings this year, courts around the country have struck down an exception to the TCPA’s prohibition against auto-dialed calls to cell phones. Several litigants have filed petitions asking the United States Supreme Court to review these decisions.

The provision in question, often referred to as the “government-debt exception,” allows certain exceptions to the TCPA for calls made by an automatic telephone dialing system “solely to collect a debt owed to or guaranteed by the United States.” It is one of few exceptions (the other being emergency notifications) to the statute’s prohibition against using an ATDS to place calls to a cell phone without the called party’s consent.

In several recent rulings, courts have struck down the government-debt exception as a content-based restriction on speech, which violates the First Amendment. First the Fourth Circuit, then the Ninth Circuit, ruled that the provision could not survive strict scrutiny review, which allows restricting speech based on its communicative content only in furtherance of a compelling government interest, and only if the restriction is narrowly tailored to support that interest.

Challengers to the government-debt exception, like Facebook in the Ninth Circuit case Duguid v. Facebook and American Association of Political Consultants in the Fourth Circuit case AAPC v. FCC, argue that the exception is content-based because it allows for automatically-dialed calls to collect on government-backed debt, but not other non-emergency calls. This distinction, they assert, is based purely on the communicative content of the call and thus must be evaluated under strict scrutiny. To illustrate, they point out a hypothetical example: A debt collector could use an ATDS to call an individual to ask for payment of a government-backed debt, then call back a second time to ask for repayment of a private debt. Under the current state of the law, the first call would be legal but the second call would not. This, they say, shows that the exception is content-based.

The United States Government, as defendant in AAPC and as an intervenor in Duguid, counters that the distinction is not based on the content of the call but on the existence of a specific economic relationship with the federal government (such as whether the recipient owes a debt to, or that is guaranteed by, the federal government). In both cases, the Courts of Appeals rejected the Government’s argument and found the exception content-based on its face.

As a result, the courts had to determine if the government-debt exception furthered a compelling government interest via a narrowly-tailored means. This is where the arguments become a bit confusing. Until now, courts have found that the TCPA furthers a compelling interest in “protecting the well-being, tranquility, and privacy of the individual’s residence.” Congress passed the ban, after all, to stop unwanted callers from disturbing family dinners with endless robo-call solicitations. How does an exception which allows a large number of calls to be made further an interest in privacy? Facebook and the AAPC say that it doesn’t, so it must be struck down. The Fourth and Ninth circuits both agreed and applied the severability clause written into the TCPA to invalidate the exception while leaving the rest of the TCPA intact.

This is where the cases get interesting, because the result of the appellate courts’ opinions is greater restriction on speech – the exact opposite of the expected outcome in a First Amendment challenge to a statute. Now the supporters of the government-debt exception and the TCPA more broadly (the government, consumer protection groups, and the plaintiffs who bring suits under the TCPA in the first place) want to reverse the appellate rulings and put the exception back in place, while the exception’s challengers (Facebook, the AAPC, and the Chamber of Commerce, among others) also want the appellate court decisions overturned, but because they think the entire TCPA must be struck down.

The challengers’ argument is not as far-fetched as it might sound. The unique aspect of this litigation is that the parties are arguing over a content-based exception to an otherwise content-neutral restriction on speech. In similar circumstances in the past, the Supreme Court has struck down entire speech-limiting statutes when confronted with a challenge to a content-based exception, such as in Ark. Writer’s Project, Inc. v. Ragland; Police Dep’t of the City of Chicago v. Mosley; and Grayned v. City of Rockford.

Although there is no circuit split on the question of the government-debt exception, the Government’s petition in AAPC asks the Supreme Court to take up the issue because several courts have invalidated a provision of a federal statute. Under such circumstances, it is not uncommon for the Supreme Court to weigh in and resolve the question for the sake of clarity in the interpretation of federal law. The Government asserts that AAPC is a better vehicle to resolve this particular constitutional challenge, because the Duguid case could be decided on other grounds and avoid the constitutional issue. Only time will tell how the high Court will handle the overlapping questions.

 

It is common knowledge that class action lawsuits are expensive. And we know that many consumer class action lawsuits are filed without a proper class representative or with a class that is otherwise ill-defined, legally deficient, or unascertainable. Other purported Telephone Consumer Protection Act class action lawsuits present potentially dispositive issues from the outset, such as whether the calls the named plaintiff received were subject to the TCPA in the first place.

Defendants hit with TCPA suits are often in the difficult position of having to spend substantial amounts of time and money on discovery, only to prevail on claims that lacked merit from the outset, particularly in cases that involve millions of call records that contain sensitive confidential information.

When faced with the prospect of expensive class discovery even though the named plaintiff’s individual claim is weak, defendants should consider moving to bifurcate discovery. See Dennis v. Amerigroup Washington, Inc., No. 3:19-cv-05165 (W.D. Wash.) (limiting discovery to issues relating to the plaintiff’s individual claims and suspending class discovery after a ruling on any dispositive motion the defendant files with respect to the plaintiff’s individual claims).

One court has seen this problem and addressed it head-on. In Boehm v. Pure Debt Solutions Corp., No. 8:19-cv-00117, 2019 U.S. Dist. LEXIS 177676 (D. Neb. Oct. 11, 2019), a TCPA class action concerning automated and/or prerecorded calls to a plaintiff’s cell phone, the Court bifurcated merits and class certification discovery by way of an initial progression order.

Interestingly, the Boehm Court recently followed up on the progression order by ordering the plaintiff to serve a preservation order to the major wireless carriers, including AT&T Mobility, Sprint/Nextel Communications, T-Mobile USA, Cellco Partnership d/b/a Verizon Wireless, U.S. Cellular, and MetroPCS. The order instructs the wireless carriers to preserve their business records concerning all calls from the defendant’s outbound dialed phone numbers.

Though the Court is requiring these third parties to comply with what essentially amounts to a litigation hold, the order is clear that no production is being compelled from them at this time.

The follow-on of a preservation order is a nice compromise that addresses plaintiffs’ concerns with discovery bifurcation. It assures a plaintiff that no data will go missing and that the claims of class members will not be prejudiced by the Court’s decision to delay class discovery. Also, by having the plaintiff serve the order on the non-party carriers, it empowers the Court to later penalize the non-party carriers for non-compliance, thereby alleviating some of the pressure on the defendant who is not otherwise able to control the acts of the carriers.

The approach also ensures that the expense of compilation and production of massive amounts of sensitive financial or consumer data is not undertaken until the plaintiff can identify a class or otherwise overcome a dispositive issue – a positive step in terms of judicial economy.

Given that Rule 26 is meant to assure that discovery is proportionate to the needs of the case, TCPA class actions should rarely merit the production of the massive amounts of consumer data class counsel often seek. Since the discovery that takes place in TCPA cases is almost always asymmetrical, it seems best to decide the big issues first and to determine whether there is a case at all rather than engage in potentially ruinous discovery.

The lesson here is that bifurcation is a powerful discovery tool. When coupled with a preservation order to overcome the often-used prejudicial effect objection employed by plaintiffs, it can reduce costs and is well worth the ask.

Showing its continuing regular focus on the background screening industry, on October 3, 2019, the Consumer Financial Protection Bureau (CFPB) published a report, entitled Market Snapshot: Background Screening Reports. The report highlights the increased demand for background screenings by employers as well as consumer challenges that may arise from their use given the vast array of data sources and consumer reporting agencies. The report follows an announcement by the Federal Trade Commission (FTC) and CFPB of a joint workshop to be held in December 2019 on issues affecting the accuracy of both traditional credit reports and employment and tenant background screening reports. The workshop will include industry representatives, consumer advocates, and regulators. While the CFPB report does not explicitly indicate future regulatory action, it underscores regulators’ interest in oversight of the background screening industry.

Summary of the Report

The report details common reporting challenges that can result in adverse outcomes for consumers, especially as it pertains to reporting criminal records. Challenges highlighted include:

  • Inconsistent systems for information collection across sources. For example, court systems’ access to public records, including criminal records, may vary among jurisdictions. Courts also may use varying terminology to describe the same public record.
  • The lack of unique identifying information which can result in improperly affiliating consumers with someone else’s information. In other words, some courts impose policies relating to redacting personal identifying information on public records, which makes it more difficult to match a particular consumer to a record and thus can lead to false matches.
  • Duplicative reporting of criminal records, which results in multiple listings of the same convictions or arrests, leaving the impression a consumer has multiple offenses.
  • Out of date, expunged, or sealed criminal information. For example, expunged records pose a particular problem because it is typically difficult to determine based on court records which cases have been expunged.
  • The inability of consumers to review reports or the underlying information prior to the information being received by employers. Given that there are several thousand background screening firms that employers may use, consumers likely cannot identify the specific firm that a particular employer may use. Even if the background screening firm can be identified, the firm may not have information on the consumer or may not be able to provide the same information to the consumer as provided to the employer.
  • Delays in updating information possessed by consumer reporting agencies. If, for example, an error exists in a court record itself, the process for the consumer to resolve the error varies by court and can be difficult and time-consuming.

In the report, the CFPB also touches on three recent developments in consumer reporting accuracy. First, the report highlights how background screening firms are utilizing technology involving machine learning and greater access to consumer data to verify identities and match criminal records. According to the report, companies may use staff or algorithmically driven database searches to determine whether there is a “hit” in the database.

Second, the report references new and expanded state expungement laws, which expand criminal records eligible for expungement. It notes a recent Pennsylvania law that requires that certain offenses be automatically sealed from public view after 10 years. Further, it references the adoption by Minnesota and Pennsylvania of the “lifecycle file”—an agreement by subscribers of those states’ contracts for bulk data purchases to update files on a near real-time basis with court records that reflect expungement and other events. Subscribers are also subject to court audits of their data.

Finally, the report states that as of early 2019, 35 states, the District of Columbia, and over 150 cities and counties, have adopted a “Ban-the-Box” or similar law that prohibits prospective employers from inquiring about an applicant’s criminal history until after an initial offer has been made. According to the report, the background screening industry has expressed concern regarding inconsistent variations of policy on the state and local level.

Key Takeaways from the Report and Proposed Workshop

The report provides a general overview of consumer report accuracy issues. While it does not provide any specific CFPB guidance, it does highlight the agency’s interest and concerns with respect to accuracy in consumer reports. Background screening companies should carefully review the challenges highlighted by the CFPB as they could be the subject of future regulatory action.

Troutman Sanders LLP will continue to monitor changes in the regulatory landscape, and it will further report on any further developments in this regard, including after the December FTC/CFPB workshop.

On September 10, Judge Yvonne Gonzalez Rogers entered a $267 million judgment against a debt collection agency that made more than 534,000 telephone calls in violation of the Telephone Consumer Protection Act. The judgment ended three years of class action litigation after plaintiff Ignacio Perez and two others alleged that defendant Rash Curtis & Associates called their cellular telephones using automatic telephone dialing systems and without the plaintiffs’ prior consent. 

In September 2017, Judge Rogers granted the plaintiffs’ motion to certify four separate classes. Two of the classes included individuals who received a call or a prerecorded message from Rash Curtis after the debt collector used “skip tracing” to obtain their phone numbers – a method that scours public and private databases to find contact information for debtors. Two other classes included “wrong number” calls, where Rash Curtis called individuals who did not have an account with the company. 

The matter proceeded to trial after the Court granted in part and denied in part the parties’ respective motions for summary judgment, finding that the defendant’s telephony constituted an ATDS as defined by the TCPA. The jury returned a unanimous verdict for the plaintiffs in May of 2019, finding that Rash Curtis violated the TCPA by placing 534,000 calls to the class plaintiffs. Judge Rogers confirmed the verdict on September 9 and awarded each member of the class the statutory penalty of $500 per call received. The Court’s award of statutory damages arguably conflicts with a recent  decision from the Eighth Circuit, where the Court of Appeals affirmed a district court’s reduction of statutory damages under the TCPA to $10 per call. 

The news is not all bad for Rash Curtis, however, as the plaintiffs notified the Court that they do not intend to seek treble damages. At $1,500 per call, the debt collector could have been on the hook for more than $800 million. 

As we have previously reported, a number of decisions at the district court level are limiting the reach of the statute, but juries continue to pile up significant TCPA verdicts without any clarity from the Federal Communications Commission in sight. The TCPA remains in chaos while the industry waits for the FCC to step into the void.

In a recent statement from the Federal Communications Commission, Chairman Ajit Pai proposed the adoption of new rules aimed at extending the anti-spoofing prohibitions in last year’s Ray Baum’s Act to international callers and texters. The provisions in last year’s Ray Baum’s Act extended the scope of the Truth in Caller ID Act, which the FCC now seeks to further extend in the new proposed rule to apply these prohibitions to international callers and texters. The move is the latest in Pai’s initiatives to curb spoofing and robocalls, including the SHAKEN/STIR summit, as well as authorization for the creation of a reassigned number database.

Previously, the Truth in Caller ID Act prohibited anyone from using misleading or inaccurate caller ID information, or “spoofing,” with the intent to defraud, cause harm, or wrongly obtain anything of value. However, these prohibitions did not extend to text messages or international calls. With the passage of Ray Baum’s Act last year, the spoofing prohibitions were extended to calls made from persons outside the United States if the recipient is within the United States, and to text messages. The new proposed rule now seeks to implement this legislation and extend the prohibitions to text messages, calls originating from abroad to recipients within the United States, and other additional types of transmissions, such as VoIP calls.

“Scammers often robocall us from overseas, and when they do, they typically spoof their numbers to try and trick consumers,” Pai said in a statement. “Call center fraudsters often pretend to be calling from trusted organizations and use pressure tactics to steal from Americans. We must attack this problem with every tool we have.”

It remains to be seen how, exactly, the FCC plans on enforcing these requirements on foreign actors. The FCC’s statement does not include any specific plans to enforce any prohibitions other than a vague statement about closing loopholes that hamstring law enforcement from pursuing overseas scammers, though we will hopefully have some update as to the actual proposed rules prior to the August 1 meeting and vote, when the FCC releases its agenda.

The ultimate catch for our industry is whether the proposed rule would differentiate between the types of scam calls the FCC seems to want to stop, and other legitimate automated calls, such as debt collectors who use off-shore call centers to call individuals located within the United States. We will have to wait another month for the answer, but hopefully the FCC has both a mechanism in place to enforce the proposed rule as well as a system to differentiate between scam calls and legitimate calls.

As a part of her plan to address the homeownership gap for black families in America, Democratic presidential candidate Kamala Harris has proposed an amendment to the Fair Credit Reporting Act that will require credit reporting agencies to include rent, cellphone, and utility payments when calculating consumer credit scores. 

The Consumer Financial Protection Bureau has reported that an estimated 26 million people in America are “credit invisible,” meaning they do not have records maintained by the nationwide credit reporting agencies. In addition, an estimated 19 million people have “unscorable” credit files, meaning they contain insufficient credit histories to generate a credit score.   

At the 25th Annual Essence Festival held in New Orleans earlier this month, Sen. Harris discussed these discrepancies and her plan to “give black families a real shot at home ownership” and “remove the barriers that black Americans face when they go to qualify for a home loan.” Harris’ plan seeks to increase access to credit for those with a limited or “invisible” credit history because they do not have traditional credit-building accounts. 

The traditional Fair Isaac Corporation, or “FICO,” score – one of the most widely used and influential credit scores – focuses on payments of debts such as credit cards, auto loans, and mortgages. FICO has an alternative data collection system in place that includes data such as telecommunications and utility payments. However, this data is generally not gathered by the three major credit reporting agencies – Experian, Equifax, and Trans Union. As noted by by Joanne Gaskin, Vice President of scores and analytics at FICO, in a recent interview, “Today, we have a voluntary system of furnishing data which means not all providers report payment information to the CRAs.” 

Troutman Sanders will continue to monitor proposed amendments to the Fair Credit Reporting Act and other updates affecting the credit reporting requirements of financial institutions.

On May 16, Commissioner Michael O’Rielly of the Federal Communications Commission issued incendiary remarks aimed at mobilizing all industries impacted by the “perpetual legal limbo” that is the current state of Telephone Consumer Protection Act interpretation and litigation. 

Speaking at the ACA International Conference, O’Rielly called for businesses to increase pressure on the agency to act in response to the litigation “mess” that has been caused by widespread uncertainty over how to interpret the TCPA. O’Rielly cautioned that “[f]ailure to address TCPA is not a failure of leadership, nor can the blame be placed on Chairman Pai.” O’Rielly instead urged “extensive cooperation and collaboration with everyone else caught in the TCPA spider web, screaming the same message at the same fever pitch.”

O’Rielly said that “[i]t remains up to this FCC to respond to that court’s set-asides, re-define [automatic telephone dialing system] in a clear and rational manner and complete the adoption of a non-arbitrary reassigned numbers database with a sufficiently workable safe harbor.” 

The remarks from O’Rielly highlighted how the TCPA legal landscape has devolved following the decision in ACA International v. FCC, noting that the resulting decisions have been riddled with inconsistent holdings on key terms such as “autodialer” and the potential for uncapped statutory damages. O’Rielly warned that the “unclear and expansive” TCPA rules that have been issued by the FCC in recent years have only served to create “a crippling litigation threat for businesses in virtually all industries.” 

O’Rielly urged the FCC to avoid embracing an overly expansive definition of ATDS. He argued that it would do “absolutely nothing to deter or prevent” spoofed and other unlawful robocalls that have been the focus of the agency in recent months. “While eliminating illegal robocalls is a critical priority, we must remain mindful not to catch legitimate organizations, like yours, in the crosshairs. The stakes are too great for businesses, consumers, and the rule of law.” 

These candid and provocative remarks from a sitting FCC commissioner are both a call to action and a beacon of hope for businesses and industries impacted by the exponential rise in TCPA litigation. However, O’Rielly’s speech is not all roses and rainbows: to those who have long awaited FCC guidance following the decision in ACA International v. FCC, O’Rielly’s call to action also means there will likely be no action on the TCPA from the FCC anytime soon. 

 

In Abdollahzadeh v. Mandarich Law Group, LLP, the Seventh Circuit affirmed summary judgment for a debt collector under the Fair Debt Collection Practices Act, finding that its procedures to prevent the collection of a time-barred debt were reasonable enough to support a bona fide error defense. 

As background, a consumer opened a credit card account in 1998. He defaulted, with his last full payment made in August 2010. In June 2011, the consumer attempted to remit another payment, but it never cleared.

The delinquent account was sold to a debt buyer, who referred collection of the debt to a law firm. The debt buyer’s data indicated that that the consumer’s last payment on the account was in June 2011, even though that payment never cleared. In reliance on this information, the law firm sent a debt collection communication to the consumer and then sued him in Illinois state court.

Upon the consumer’s motion, the state court ultimately dismissed this lawsuit because the last actual payment, the August 2010 payment, occurred outside of Illinois’ five-year statute of limitations.

The consumer subsequently filed a federal court lawsuit against the defendant law firm under the FDCPA for attempting to collect a time-barred debt.

In its motion for summary judgment in the FDCPA case, the law firm argued that this was an unintentional bona fide error and that it had reasonable procedures in place to prevent the collection of time-barred debts. For example, the law firm relied on information provided by its client, the debt buyer, which was reaffirmed by an affidavit from the debt buyer used in the state court case. The relevant dates for the accounts were subjected to an automated “scrub” which flagged accounts for which the statute of limitations might have expired. An attorney also examined the account information available before filing the lawsuit to confirm that the statute of limitations had not expired.

The federal district court found that these procedures were sufficient for a bona fide error defense to the FDCPA, a decision that was affirmed on appeal. In its ruling, the Seventh Circuit repeatedly stressed that “reasonable procedures” were all that was required to invoke the bona fide error defense – not perfect procedures or independent verification of the debt information, as the consumer tried to argue.

Abdollahzadeh is yet another case that stresses the importance of robust policies and procedures designed to ensure compliance with the FDCPA. However, unlike some other cases, it provides concrete examples of what type of procedures are likely to be considered reasonable by a court.

Nearly every American with a cellphone has had it happen to them. You receive a call from an unknown number with an automated message pitching refinance options for the loan you don’t have, or consolidation options for the student loan you already paid off.

In a new report released by Hiya, a Seattle-based spam-monitoring service, it was found that approximately 26.3 billion robocalls were placed to U.S. phone numbers last year – a 46 percent increase from the 18 billion placed in 2017.  More disturbingly, one report projected that at least half of all cellphone calls in 2019 could be spam.

Automated phone calls can be a cost-efficient and incredibly effective mechanism for the many businesses that have legitimate purposes for using them, such as delivery services, banks, and mortgage services.  However, the inconceivable number of illegitimate and unwanted spam robocalls is causing Americans to not answer about half of all cellphone calls according to Hiya, thus causing Americans to miss important calls and creating a difficult challenge for legitimate users as well as regulators and phone carriers.

In its report, Hiya analyzed activity from 450,000 users of its app to identify the scope of robocalling and how those receiving the calls responded to them.  In a month’s worth of data, Hiya found that each of its app users reported an average of 10 unwanted robocalls.  An average of 60 calls per user were from unrecognized numbers or numbers not linked to a recipient’s address book.

While spam robocalling may not be going away any time soon, federal regulators have taken notice of the 52,000 consumer complaints about caller ID spoofing in 2018 and have moved to adopt rules to facilitate the rollout of new technologies to combat these calls.  Multiple cell phone carriers have pledged to implement caller authentication services that follow the same principles as website encryption.  The goal of the new protocol is to limit the effects of caller ID spoofing such as when a spammer poses as a caller from a person’s own area code to trick them into answering the call.

As technology changes, so too will the rules and regulations regarding calling practices that may have the unintended consequence of creating new hurdles for legitimate businesses using automated dialers.

Troutman Sanders will continue to monitor and report on important developments involving calling regulations.

The decision in ACA Int’l v. FCC, 885 F.3d 687, 701 (D.C. Cir. 2018), invalidated the Federal Communications Commission’s 2015 Declaratory Ruling with regard to what qualifies as an automatic telephone dialing system, or “ATDS,” under the Telephone Consumer Protection Act.  Based on this, the Third Circuit, in Dominguez v. Yahoo, Inc., 894 F.3d 116, 119 (3d Cir. 2018), held that it would interpret the definition of an ATDS as it had prior to the 2015 Declaratory Ruling.  Accordingly, the Dominguez decision focused on whether a particular system had the present capacity to function as an autodialer.  This left open the question of whether a predictive dialer – that is, equipment that dials numbers from a set database and assists in predicting when an agent will be available to take calls – qualifies as an ATDS under the statute.  Recently, two district courts within the Third Circuit have considered this question and have reached opposite conclusions. 

In Wilson v. Quest Diagnostics Inc., No. 2:18-11960, 2018 U.S. Dist. LEXIS 212023 (D.N.J. Dec. 10, 2018), the District of New Jersey determined that, although the FCC’s 2015 Declaratory Ruling had been set aside in ACA International, the FCC’s previous rulings remained in effect.  It therefore held that “a predictive dialer qualifies as an ATDS so long as it has ‘the [present] capacity to dial numbers without human intervention.’”  Id. at *7, quoting In re Rules and Regulations Implementing the Tel. Consumer Prot. Act of 1991, 18 FCC Rcd. 14014, 14092 (2003).  Because the plaintiff alleged facts adequate to show that she received calls placed with a predictive dialer, the Court denied Quest’s motion to dismiss her TCPA claim.   

In contrast, in a decision issued just four days later, the Eastern District of Pennsylvania reached the opposite conclusion.  In Richardson v. Verde Energy USA, Inc., No. 15-63252018 U.S. Dist. LEXIS 212558, at *17 (E.D. Pa. Dec. 14, 2018), the Court determined that, in addition to overturning the 2015 Declaratory Ruling, ACA International invalidated the FCC’s 2003 and 2008 Orders by implication.  Based on the finding that these rulings are no longer in effect, it held that “a predictive dialing device that merely dials numbers from a stored list of numbers – rather than having generated those numbers either randomly or sequentially – is not an ATDS.”  Id. at *22.  Because there was no evidence to show that the predictive dialer at issue could randomly or sequentially generate numbers to be called, the Court granted summary judgment in favor of the defendant to the extent the claims were based on the alleged use of an ATDS. 

The different approaches adopted by the district courts will likely lead to further clarification from the Third Circuit.  Accordingly, Troutman Sanders will continue to keep a close eye on the situation and report as interpretations of the TCPA continue to evolve.