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Pursuant to its authority under Section 1022(b)(1) of the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to consumer reporting agencies (CRAs), highlighting their obligation to screen for and eliminate obviously false data from consumers’ credit reports. Specifically, CRAs were instructed to implement policies, procedures, and systems to screen for and remove “logically inconsistent” information.

In its advisory opinion, the CFPB emphasized the negative effects that inaccurate reporting can have on consumers: “[I]naccurate, derogatory information in consumer reports can lead to higher interest rates, ineligibility for promotional offers, or otherwise less favorable credit terms for affected consumers. This in turn may cost consumers hundreds or thousands of dollars in additional interest. Even worse, inaccurate, derogatory information in consumer reports could lead lenders to deny a consumer credit entirely, making it difficult or impossible for that consumer to obtain a mortgage, auto loan, student loan, or other credit.”

The advisory opinion also provided examples of some of the types of logical inconsistencies that the CFPB contends “reasonable procedures to assure maximum possible accuracy” would screen for and eliminate:

  • Inconsistent Account Information of Statuses, which may include:
    • An account whose status is paid in full, and thus has no balance due but nevertheless reflects a balance due;
    • An account that reflects an “Original Loan Amount” that increases over time, an impossibility by definition;
    • Derogatory information being reported on an account, although that derogatory information predates an earlier report that did not include the derogatory information;
  • Illogical reporting of a Date of First Delinquency in connection with an account, which may include:
    • A Date of First Delinquency reported for an account whose records reflect no delinquency, such as through activity reflecting a current account (complete history of timely payments, $0 amount overdue) or through a current account status code;
    • A Date of First Delinquency that post-dates a charge-off date; and
    • A Date of First Delinquency, or date of last payment, that predates the account open date (for non-collection accounts).
  • Illogical reporting of information relating to consumers, which may include:
    • Impossible information about consumers — for example, a tradeline that includes a relevant date for an account that is in the future or for an individual account that either predates that consumer’s listed date of birth or that is impossibly far in the past;
    • Information that is plainly inconsistent with other reported information, such that one piece of information must be inaccurate — for example, if every other tradeline is reporting ongoing payment activity, while one tradeline contains a “deceased” indicator; and
  • Illegitimate credit transactions for a minor.

According to the CFPB, complaints about incorrect information on consumer reports have represented the largest share of credit or consumer reporting complaints submitted to the CFPB each year for at least the last six years. The advisory opinion emphasized that “a consumer reporting agency that does not implement reasonable internal controls to prevent the inclusion of facially false data, including logically inconsistent information, in consumer reports it prepares is not using reasonable procedures to assure maximum possible accuracy under section 607(b) of the Fair Credit Reporting Act.”

The Bureau of Consumer Financial Protection (CFPB) ordered Hyundai Capital America (Hyundai) to pay $19.2 million for allegedly providing inaccurate information to consumer reporting agencies, including, the CFPB alleged, wrongly reporting that consumers were delinquent on loans and leases, in violation of the Fair Credit Reporting Act (FCRA).

In its press release, the CFPB stated that it received many consumer complaints that Hyundai furnished inaccurate credit information about consumer payments on loans and leases to consumer reporting agencies. The CFPB asserted that Hyundai furnished inaccurate information on more than 2.2 million customer accounts and identified many issues in its internal audits, but it “took years” to address the problems.

More specifically, the CFPB states that Hyundai violated the FCRA by:

  • Failing to report complete and accurate loan and lease information, including failing to promptly update and correct information it had furnished to consumer reporting agencies that it determined was not complete or accurate;
  • Failing to provide date of first delinquency information to consumer reporting agencies when required;
  • Failing to modify or delete information when required, specifically that monthly updates by Hyundai’s furnishing system to consumer reporting agencies allegedly overrode manual corrections made by employees in responding to consumer disputes, which allegedly reintroduced the data error after it had been disputed and corrected;
  • Failing to have reasonable identity theft and related blocking procedures and continuing to report such information that should have been blocked on a consumer’s report; and
  • Failing to have written accuracy and integrity policies and procedures as required by Regulation V, specifically an alleged failure to review and update its credit reporting furnishing policies and procedures from 2010 to 2017.

As a result of its investigation, Hyundai was ordered to pay a $6 million civil penalty and $13.2 million in restitution to current and former customers, as well as to take steps to correct all inaccurate account information.

An enforcement action of this size and severity indicates the CFPB’s continued priority on investigating creditors’ furnishing practices under the FCRA.

On March 24, the Eighth Circuit Court of Appeals issued an opinion, upholding separate district court decisions finding that a system that sends promotional text messages to phone numbers randomly selected from a database of customer information is not an automatic telephone dialing system (ATDS) under the Telephone Consumer Protection Act (TCPA). The concise opinion espouses a common sense reading of the word “produce,” finding that the word requires an ATDS to generate a random number, rather than to select a number randomly.

District Court Decisions

In two separate decisions from the Western District of Missouri, plaintiffs Colby Beal and Zachary Smith alleged that they received promotional text messages from separate bar establishments, both of which used marketing software called “Txt Live.” The Txt Live software includes a database that stores contact information. The defendants’ employees manually entered contact information, including phone numbers, into the database — a system without the capacity to randomly or sequentially generate phone numbers.

To send mass text messages, Txt Live users filter the recipients, select the number of potential customers, draft the content of the text message, then hit “send.” The system then shuffles through target contacts, a process the court likened to shuffling a deck of cards, then selects recipients from the top of the list. Both district court judges concluded that the “number shuffling” did not constitute random selection of telephone numbers to be called.

Eighth Circuit Decision

The Court of Appeals upheld the district courts’ decisions, focusing on the meaning of the word “produce” in the statute and finding that the TCPA requires a system to “produce” by “generating a random number.” And, because the Txt Live system does not generate phone numbers to be called, it does not “produce telephone numbers to be called” under the statute. Though the appellants argued that this reading edits the statute to write in the word “generated,” the court disagreed, finding that it “simply interpret[ed] the word ‘produce,'” a word the court found does not include selection of numbers.

The court also found that the Supreme Court’s opinion in Facebook v. Duguid “strongly bolstered” its findings. Not only did the Eighth Circuit conclude that the Txt Live system “is exactly the kind of equipment Facebook excluded” from the definition of an ATDS, the court also rejected the infamous “Footnote Seven” argument. Where the appellants’ attorneys argued that Footnote Seven of the Facebook decision saved its argument that the Txt Live system was an ATDS because it stored numbers to be dialed at a later time, the court disagreed. “Like other courts, we do not believe the [Supreme] Court’s footnote indicates it believed systems that randomly select from non-random phone numbers are Autodialers.” Rather, the system is simply one “that merely stores and dials phone numbers.”

The opinion is one of the first appellate decisions to interpret Facebook and, additionally, one of the first major opinions applying the Footnote Seven argument specifically to text messaging systems, as the majority of Footnote Seven arguments have been directed toward predictive dialers. In a circuit largely silent on TCPA issues pre-Facebook, the decision represents a succinct and no-nonsense summation of TCPA issues in the wake of the Supreme Court’s decision, resolving those issues in favor of TCPA defendants.

On February 24, the Consumer Financial Protection Bureau (CFPB or Bureau) released a blog post, outlining multiple auto lending topics in the wake of rising vehicle prices. According to Bureau of Labor Statistics data, the consumer price index has risen 40% for used cars and trucks and 12% for new cars since January 2021. As a result of these increases, the CFPB expects the total amount of debt and average loan size to continue to rise.

The blog post outlines three primary ways the CFPB seeks to ensure a fair, transparent, and competitive auto lending market in the wake of the significant price changes:

  • Ensuring affordable credit for auto loans;
  • Monitoring practices in auto loan servicing and collections; and
  • Fostering competition among subprime lenders.

Specifically, the CFPB:

  • Plans to monitor lending structures and consumers outcomes, particularly those where lenders rely on high interest rates and fees — even in the event of consumer failure;
  • Is concerned that loan-to-value ratios will begin to rise as they did prior to the global vehicle shortage;
  • Wants servicers to make accommodations available to all consumers;
  • Intends to work with other federal agencies to ensure proper treatment of servicemembers;
  • Is concerned that the use of technologies, such as GPS location devices and license plate recognition technology, may disproportionately impact certain communities and also cause privacy issues; and
  • Wishes to understand potential barriers to entry in the subprime market and seeks to work with the Federal Trade Commission and the Federal Reserve Bank Board of Governors to address issues in the market.

The CFPB’s blog post serves as a reminder that auto finance is still very much on the Bureau’s radar. It also provides a glimpse into the types of items the CFPB will be looking at in auto finance under Director Rohit Chopra.

The Department of Education (Department) has announced that individuals who have a total and permanent disability (TPD) will have their unpaid student loans automatically discharged without having to file any paperwork. The change will affect 323,000 borrowers and result in a discharge of more than $5.8 billion in unpaid loan balances.

Pursuant to regulations enacted under the Higher Education Act, individuals with a total and permanent disability are entitled to a discharge; however, under the prior rule borrowers were required to submit an application to qualify for the relief, and only half of the eligible borrowers had received a discharge.

Under the new rule, the Department will automatically match the Social Security numbers of borrowers with unpaid student loan balances against a database maintained by the Social Security Administration of individuals who are identified as having a total and permanent disability. The loans for those cross-referenced individuals will then be eliminated. The process will begin in September.

“Today’s action removes a major barrier that prevented far too many borrowers with disabilities from receiving the total and permanent disability discharges they are entitled to under the law,” said U.S. Secretary of Education Miguel Cardona in a statement. “From day one, I’ve stressed that the Department of Education is a service agency. We serve students, educators, and families across the country to ensure that educational opportunity is available to all. We’ve heard loud and clear from borrowers with disabilities and advocates about the need for this change and we are excited to follow through on it. This change reduces red tape with the aim of making processes as simple as possible for borrowers who need support.”

The Department is also proposing to end a three-year income monitoring period to determine whether individuals who have been designated as TPD are making enough money to repay their student loans. The monitoring program has been suspended during the COVID-19 pandemic, but the Department is proposing to eliminate it entirely.

With this latest action, the Biden-Harris administration now has approved approximately $8.7 billion in student loan discharges for roughly 455,000 borrowers. In addition, the Department has extended the pause on student loan repayment, interest, and collections to January 31, 2022.

In Meier v. Allied Interstate, LLC, Judge Gonzalo P. Curial found that while LiveVox HCI could store numbers as required by the Telephone Consumer Protection Act, because each call required human intervention, it did not qualify as an automatic telephone dialing system within the definition of the TCPA.

Plaintiff Richard Meier brought an action against Allied Interstate, LLC, alleging that Allied had contacted his cellphone using an ATDS in violation of the TCPA. Allied acknowledged that it had contacted Meier, but denied using an ATDS to do so. Both parties filed motions for summary judgment.

On review, the Court analyzed the telephone system used to contact Meier. The Court noted that the calls were made on one outbound calling system that was part of a larger calling platform. The platform included LiveVox HCI and an automated system. Both systems rely on a campaign database and an automatic call distributor to create calling campaigns, store customer data, and route phone calls to live agents. However, the systems rely on differ server pools – a manual media server pool for HCI, and an automated media server pool for the automated dialer.

Clients upload a file with phone numbers and then select campaign parameters, including which telephone to use – HCI or the automated dialer. Once a campaign is activated using the HCI system, the telephone numbers are shown to a “clicker agent,” who then initiates phone calls by clicking on individual phone numbers. Each phone number must be selected and clicked individually. Once selected, the recipient is called. If a person answers the call, the call is re-routed to a closer agent by the system. If no closer agent is free to speak with a customer, the clicker agents’ screens do not display phone numbers, meaning no calls are made.

By contrast, no clicker agent is required for an automatic campaign. Once the campaign is launched, the system automatically dials the numbers in the queue in order to keep the closer agents occupied.

The Court analyzed the TCPA’s current legal landscape and concluded that, “[s]ince the FCC’s interpretation of an ATDS was struck down, all that remains is the statutory definition of ATDS by Congress.” Based on the TCPA’s plain language, the Court concluded that HCI was not an ATDS because it “is incapable of ‘non-manual’ dialing” due to the necessity of clicker agents to actually initiate each phone call. The Court noted the “overwhelming weigh[t] of authority” of “point-and-click systems” shows that “they do not qualify as ATDS equipment ‘in light of the clicker agent’s human intervention.’”

The Court further explored whether HCI should be considered collectively with the automated system in regards to “capacity” to automatically dial phone numbers. The Court noted all of the very intentional differences and separations between the systems and reasoned that the definition of an ATDS, in order to effectuate the intent of Congress, should “reasonably cabin[] liability to telemarketers’ voluntary actions, and eliminate[] liability arising from technical components of a dialing system that Defendant elected not to use and ha[d] sought to avoid.” Accordingly, the Court concluded that the “equipment” at issue is the HCI dialer, and not the platform as a whole.

This decision contributes to the “overwhelming weigh[t] of authority,” which holds that telephone systems requiring human interaction to initiate calls are not an ATDS within the definition of the TCPA, even if they are part of larger platforms that contain separate systems with automatic dialing capacity.

In recent years, courts nationwide have grappled with the statutory definition of an Automatic Telephone Dialing System (“ATDS”) under the Telephone Consumer Protection Act (“TCPA”). While many courts have adhered to the statutory text by requiring a telephone to be capable of random or sequential number generation to qualify as an ATDS, other courts have taken a broader approach by finding that storage of telephone numbers is enough. Now, we may be getting closer to a definitive answer, as Facebook has asked the Supreme Court of the United States to weigh in on the question of exactly what constitutes an ATDS.

The question of what qualifies as an ATDS has been the subject of much discussion in recent years. In 2015, the Federal Communications Commission continued its history of interpreting the TCPA through an order that dramatically expanded the definition of an ATDS. In response, in 2018, the D.C. Circuit Court of Appeals struck down that order after determining that the FCC’s definition of an ATDS could be interpreted to include smartphones, thus making “nearly every American … a TCPA-violator-in-waiting, if not a violator-in-fact.” ACA International v. FCC. In the wake of ACA, the Ninth Circuit waded in with its now (in)famous ruling in Marks v. Crunch San Diego, LLC. In Marks, the Ninth Circuit found that storage of telephone numbers, without random or sequential number generation, was enough. In doing so, the Ninth Circuit introduced some of the very same uncertainty into the law that the court in ACA sought to resolve.

Enter Facebook. Earlier this year, in Duguid v. Facebook, Inc., Facebook argued that the Ninth Circuit’s definition of an autodialer was too broad. In defending a lawsuit in which the plaintiff alleged that Facebook sent him unsolicited security alerts via text message from an ATDS, Facebook argued that its equipment was not an ATDS because it stores numbers only to be called “reflexively” in response to “outside stimuli” such as a suspicious log-in. Facebook’s equipment, it argued, does not “use a random or sequential number generator” and thus should not be considered an ATDS. Without narrowing the definition to exclude equipment which only stores numbers for “responsive” calling, Facebook warns that once again all smartphones will be considered autodialers and all of us will be violating the TCPA any time we send an unsolicited text message. The Ninth Circuit was unimpressed with Facebook’s argument, and ruled that the plaintiff’s claims could go forward.

Not one to take defeat lightly, Facebook recently petitioned the Supreme Court, asking the Court to weigh in. In addition to a very interesting First Amendment question (a topic for another post), Facebook has specifically asked the Supreme Court to decide “[w]hether the definition of ATDS in the TCPA encompasses any device that can ‘store’ and ‘automatically dial’ telephone numbers, even if the device does not ‘us[e] a random or sequential number generator.’”

Anyone practicing or operating in this area should follow the developments of this case. The question of whether equipment is or is not an ATDS is frequently crucial to any TCPA claim. Only time will tell if the justices will see the need to resolve this particular question, but Facebook’s petition alleges a conflict between the Ninth Circuit’s decision and opinions from the Third and D.C. circuits. Settling a circuit split is often a strong justification for the Supreme Court to take a case.

Troutman Sanders will continue to monitor developments in this area.

Despite the Federal Communications Commission currently deliberating as to the meaning of “autodialer” under the Telephone Consumer Protection Act, a California federal judge found that the Ninth Circuit has resolved the issue, denying a defendant’s attempt to pause a spam-text suit. Not only does the ruling by U.S. District Judge Haywood S. Gilliam Jr. counter recent decisions staying complaints to wait for the FCC to finish its consideration of the meaning of “autodialer,” but Judge Gilliam’s ruling specifically allowed a class action case, Izor v. Abacus Data Systems, Inc., case number 4:19-cv-01057, in the U.S. District Court for the Northern District of California, to continue against Abacus—a company that sells software to attorneys, accountants, and others. 

On August 5, Judge Gilliam ruled that the Ninth Circuit’s decisions in Marks v. Crunch San Diego, LLC, 904 F.3d 1041 (9th Cir. 2018), and Duguid v. Facebook, 926 F.3d 1146 (9th Cir. 2019), already defined what an “autodialer” is, regardless of the FCC’s position at this time, rendering the issue in Izor not particularly novel or complicated. 

The FCC solicited public comment on the meaning of “autodialer” in May 2018 after the D.C. Circuit struck down an FCC ruling from 2015 in ACA International v. Federal Communications Commission et al., 885 F.3d 687 (D.C. Cir. 2018), that broadly interpreted the term. However, despite the instability around the meaning of “autodialer,” the Ninth Circuit has pressed forward with ruling on the issue. 

In 2018, the Ninth Circuit in Marks ruled that an “autodialer” encompassed “equipment which has the capacity—(1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically (even if the system must be turned on or triggered by a person).” Marks, 904 F.3d at 1053. The Court reiterated that determination in June 2019, in Duguid. Since Marks, there have been a number of other District Courts to reject the rationale set forth by the Ninth Circuit, including the Northern District of Texas and the Eastern District of North Carolina. 

Abacus tried to assert that the FCC’s solicitation of public comment on what an “autodialer” is showed that a definition of the term is clearly not set in stone and that the FCC’s input was necessary to proceed with Izor. Judge Gilliam did not agree, stating that the Ninth Circuit’s ruling in Marks was binding, controlling authority, thereby settling the issue. Thus, without waiting for FCC guidance, the Ninth Circuit decided that the definition of “autodialer” is “no longer a matter of first impression and … not a ‘particularly complicated issue’” that warranted pausing the litigation, especially in light of the reaffirmation of Marks in a subsequent case by the Ninth Circuit this year. 

Troutman Sanders LLP will continue to monitor developments in the definition of “autodialer” by the FCC, application of the definition in the Ninth Circuit, and if there is any conflict between the two as they arise.

Over the last few years, an increased focus continues on the right to privacy and the debate on how to best implement privacy tools that are balanced with business and technological innovation.  In the United States, the debate to adopt policies like those in the European Union has recently intensified as consumer advocates view data collection as being intrusive and offensive; however, these criticisms fail to appreciate the key factors driving the debate.

Notably, in 2018, California passed the most comprehensive data use legislation in the nation (the California Consumer Privacy Act of 2018), which has been compared by many to the European Union’s General Data Protection Regulation. California also became the first state to enact an Internet of Things (“IoT”) cybersecurity law (SB 18-327), which requires connected devices to be equipped with “reasonable security features,” as defined by the bill. Both laws have been praised by consumer advocates, although many have taken the position that the laws will do little to improve consumer protection, but instead will create substantial burdens for companies. Although both laws are effective as of January 1, 2020, it is important to note that the two laws remain a moving target and further amendments may be on the horizon.

As IoT explodes in popularity and make innovations such as augmented reality (“AR”) and autonomous vehicles possible, the functionality demanded by consumers will require data collected from human user experience.  The companies that fail to properly leverage new technologies and data opportunities may find themselves falling behind their competitors.  Companies developing products on the cutting edge of technology should stay informed of recent enforcement actions, legal cases, and laws to determine how their offerings in the ecosystem may be impacted.

This publication covers the ongoing evolution of the legal landscape for data-centric products, so that organizations can continue to succeed in their development of new technologies and products.

Click here to download the report

On November 20, Federal Communications Commission Chairman Ajit Pai proposed the implementation of a reassigned numbers database and a declaration that wireless providers are authorized to take measures to stop unwanted text messaging through use of autodialed text messaging (“robotext”)-blocking, anti-spoofing measures, and other anti-spam features. 

Calls to reassigned numbers can be a significant problem for legitimate businesses making calls for which they have prior consent and for consumers receiving unwanted messages.  To combat this problem, the draft order would establish a single database of reassigned numbers based on information provided by phone companies that obtain North American Numbering Plan U.S. geographic numbers. The database should help legitimate callers direct their calls to parties who asked for them rather than individuals who have subsequently obtained those reassigned numbers. 

As an increasing number of Americans rely on text messaging as a communications service, the draft Declaratory Ruling on text messaging would formally rule that text-messaging services are information services, not telecommunications services. This would allow carriers to continue using robotext-blocking and anti-spoofing measures to protect consumers from unwanted text messages. 

In the FCC press release announcing the proposal, Pai stated, “Combatting robocalls is our top consumer protection priority, and these proposals are a significant step forward in that effort.  Today, I am calling on the FCC to take additional measures to combat these calls and also to prevent a flood of spam robotexts from clogging Americans’ phones.” 

The FCC will consider these items at its Open Commission meeting on December 12.  

Troutman Sanders will continue to monitor the movement of these proposals and will report on any further developments.