Mulvaney Reins in the CFPB

On November 24, 2017, the White House appointed Mick Mulvaney as acting director of the CFPB, effective November 27, 2017.  Since then, concerns have been raised that Mulvaney might ‘gut” the agency.  Here is a quick look at the actions of the agency since Mulvaney’s appointment:

• December 2017: The CFPB has changed its mission statement.  Previously the mission statement read: “The Consumer Financial Protection Bureau is a 21^st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives”  The mission statement now reads: “The Consumer Financial Protection Bureau is a 21^st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.” (emphasis supplied).
• December 2017:  Various actions of the CFPB indicate debt collection rulemaking is on hold.  Specifically, the CFPB withdrew its request to the OMB to conduct an online survey of consumers as part of its debt collection disclosures.
• January 16, 2018: The CFPB announced its intentions to reconsider the final payday rule which took effect January 16, 2018.
• January 17, 2018: Director Mulvaney informed the Fed that the CFPB will forego any funding for the Second Quarter of 2018, stating its intent to spend down the CFPB’s reserve fund prior to requesting any additional funding. In his letter to Fed Chair Janet Yellen, Mulvaney states as follows:
  I have determined that no additional funds are necessary to carry out the authorities of the Bureau for FY 2018, Q2.  Simply put, I have been assured that the funds currently in the Bureau Fund are sufficient for the Bureau to carry out the statutory mandates for the next fiscal quarter while striving to be efficient, effective, and accountable.”
• January 17, 2018: The CFPB stated its intent to publish in the Federal Register a series of Requests for Information seeking comment on its enforcement, supervision, rulemaking, market monitoring and education activities. The Release quotes Mulvaney as stating that “[i]n this New year, under new leadership, it is natural for the Bureau to critically examine its policies and practices to ensure they align with the Bureau’s statutory mandate.” The first of those RFIs will review the Bureau’s Civil Investigative Demand processes and procedures.

The actions of Mulvaney thus far indicate the Trump administration, at a minimum, will significantly reign in the CFPB.  The question becomes: will they go too far?

Second Circuit Holds Flu Shot Reminder Did Not Violate the TCPA

The Second Circuit has affirmed a lower court decision that a flu shot reminder sent by text message by a medical provider did not violate the Telephone Consumer Protection Act (the “TCPA”).  The decision is important because it interprets the 2012 FCC Healthcare Exemption as providing an exemption as to prior written consent rather than a wholesale exemption from consent.  Latner v. Mount Sinai Health System, Inc., 2018 U.S. App. LEXIS 114 (2^nd Cir. Jan. 3, 2018).

The limited record indicates that Mr. Latner visited Mt. Sinai in 2003 for a routine health examination.  At that time, he filled out new patient forms including a “New Patient Health Form” which contained his contact information, as well as an “Ambulatory Patient Notification Record” granting the hospital and its facilities consent to use his health information “for payment, treatment and hospital operations purposes.”  In 2011, Mr. Latner visited Mt. Sinai again and declined any immunizations.  In 2014, Mt. Sinai, through a third-party vendor, sent Mr. Latner the following text message: “Its flu season again.  Your PCP at WPMG is thinking of you! Please call us at 212-247-8100 to schedule an appointment for a flu shot…”  Latner at *3.  The message was sent to all active patients, including Mr. Latner, that had visited the office in the three years prior to the date of the text.

Mr. Latner filed a putative class action, alleging that the text message violated the TCPA.  The hospital moved for judgment on the pleadings and asserted, as an affirmative defense, Mr. Latner’s prior express consent. Latner, 1:16-cv-00683 (S.D.N.Y.), Dkt. No. 42. 

In affirming the district court’s ruling, the Second Circuit did a two-step analysis.  It first determined whether the communication was covered by the 2012 FCC Healthcare Exemption and secondly, determining whether Mr. Latner had provided effective consent. 

The Second Circuit concluded that the communication was covered by the 2012 FCC Healthcare Exemption.  Under the 2012 FCC Telemarketing Rule, prior written consent is required for autodialed or prerecorded telemarketing calls.  The Rule, however, contains an exemption for covered healthcare providers in certain instances.  The court determined that the Healthcare Exemption exempts from written consent “calls to wireless cell numbers if the call ‘delivers a ‘health care’ message made by, or on behalf of, a ‘covered entity’ or its ‘business associate’ as those are defined in the HIPPA Privacy Rule.”  “HIPPA defines health care to include ‘care, services, or supplies related to the health of an individual’… and exempts from its definition of marketing all communications made ‘[f]or treatment of an individual by a health care provider… or to direct or recommend alternative treatments’ to the individual.” Id. at *5.  Both the district court and the Second Circuit concluded that the text message qualified for the FCC’s Healthcare Exemption.

The Second Circuit then moved to the issue of prior express consent and reviewed the terms of the consent provided by Mr. Latner in his 2003 consent forms.  Of particular importance to the court, the forms provided consent to use Latner’s information “to recommend possible treatment alternatives or health-related benefits and services.” Id. at *6-7.    The court concluded that the language of the forms therefore provided prior express consent to receive text messages concerning a “health related benefit” such as a flu shot.

The opinion is important for a few reasons.  First, it clarifies that the Healthcare Exemption only exempts covered communications from written consent and is not a wholesale exemption as to consent. Secondly, the opinion emphasizes the importance of carefully worded consent provisions.  All business verticals which use automated messaging, calls or text messages should review their intake documents to ensure that consent is properly addressed as to the scope of any contemplated telecommunications and then should again review any contemplated mass communications prior to being made in light of their consent documents.  Finally, the opinion notes by footnote that the text message (which was sent in 2014) was not covered by the FCC’s 2015 Healthcare Treatment Exception because “there is no language in the 2015 FCC order suggesting any intent to make the Exception retroactive, much less justification for any asserted retroactivity, precluding its application in this instance.” Id. at FN 2.

Debt Collection Letter's Inclusion of Court Costs Was Not Deceptive

Any opinion that starts out by stating “[t]his case is about $82.00” is not likely to go well for one party and in this instance, that was the case for Nestor Saroza.  A New Jersey district court recently held that a debt collection letter was not false or deceptive when it included court costs in its demand for the balance.  In Saroza v. Lyons, Doughty & Veldhuis, 2017 U.S. Dist. LEXIS 208913 (D.N.J. Dec. 19, 2017), the collection law firm filed a collection suit seeking recovery of the balance due ($9,971.55), plus court costs.  Its subsequent collection letter demanded a balance of $10,053.55.  The difference, $82.00, was comprised of court costs.  The consumer filed suit asserting that the demand letter violated the FDCPA because the $82.00 was not part of the debt.  The demand letter in question read as follows:

LYONS, DOUGHTY & VELDHUIS, P.C. . . .

Re: Capitol One Bank (USA), N.A. v. NESTOR SAROZA

Docket No. DC-00065-16

Amount Due: $10,053.55

Dear NESTOR SAROZA:

We have filed suit to recover the balance due in the above matter. However, our goal is to resolve the debt in a way that is manageable for you. We encourage you to contact us. If you would rather not call us, you can ask questions and/or make a settlement offer or payment arrangement proposal via our website: www.ldvlaw.com . . . .

THIS FIRM IS A DEBT COLLECTOR

In support of dismissal, the law firm presented the credit card agreement which provided for the recovery of the creditor’s collection expenses, attorneys’ fees and court costs and pointed to the collection suit to support its argument that the letter was accurate.  The consumer meanwhile argued that the letter did not explain the filing fees were included and thus, was false, deceptive or misleading.  According to the court, “[i]n essence, the line Saroza wants this Court to draw seems to be that collection notices which say ‘with costs’ are permissible under the FDCPA but those that add the costs into the requested sum are not.”  Saroza at *7-8.  The court declined to do so.  Instead, the court determined that this was a distinction without a difference - particularly where the costs are accurate and the consumer was on notice from the Customer Agreement that this could happen.

The court also rejected the consumer’s argument that the omission of the court costs from the summons issued by the state court, coupled with the letter, was misleading.  In doing so, the court noted that the summons was issued by the court not the defendant and placed the burden on Saroza to read the complaint served with the summons.

In dismissing the law suit, the Court made clear that certain basic responsibilities fall upon a consumer – to read the documents provided to him by the creditor and debt collector.  The Court further emphasized a theme that we are seeing more and more: that the FDCPA will not allow liability for bizarre or idiosyncratic interpretations of collection notices and preserves a quotient of reasonableness and presumes a basic level of understanding and willingness to read with care.  See Wilson v. Quadramed Corp., 225 F.3d 350, 354-55 (3^rd Cir. 2000)

District Court Takes Expansive View of "Deceptive or Misleading" Practices under FDCPA

By Zachary Dunn

The FDCPA prohibits a debt collector from using “any false, deceptive, or misleading representation” in connection with the collection of a debt. See 15 U.S.C. § 1692e.  Recently, the Eastern District of New York took an expansive view of section 1692e, thereby making truthful statements a violation of the statute’s mandates.

In Islam v. Am. Recovery Serv., 2017 U.S. Dist. LEXIS 180415 (S.D.N.Y. Oct. 30, 2017), the plaintiff, Fatema Islam, failed to pay the balance due on her credit card with Bank of America, N.A., and Bank of America responded by placing Islam’s account with American Recovery Service (“ARS”) for collection.  Id. at *2.  ARS sent a letter to Islam on August 11, 2016 stating, in relevant part, that “[a]s of the date above, you owe $14,413.78.”  The letter also included a table of information which provided other details – such as identifying Bank of America as the original creditor,” noting that the “total amount of the debt due as of charge-off" as $14,413.78; declaring that the “total amount of interest accrued since charge off” was $0, and further notifying Islam that the “total amount of non-interest charges or fees accrued since charge-off” was $0.  After the table, the letter again advised Islam that “[t]he balance owed above reflects the total balance due as of the date of this letter. The itemization reflects the post charge-off activity we received from Bank of America.” Id. (emphasis added).   

Bank of America maintained a policy that any charged off account would not accrue any new interest or fees after the date of charge off.  Consistent with that policy, the balance on Islam’s account had not grown since it was charged off on August 4, 2016.  Based solely on the language of the August 11, 2016 letter, Islam filed suit alleging that the letter was false or misleading in violation of 15 U.S.C. § 1692e.

The court agreed, and based its analysis on the Second Circuit’s 2016 decision in Avila v. Riexinger & Associates, 817 F.3d 72 (2d Cir. 2016).  In Avila, the Second Circuit encountered a case in which a collection letter disclosed the “current balance” of the debt, but did not disclose that after the date of the collection letter, the account was continuing to accrue interest and late fees.  Id. at 75-76.  The Second Circuit held that because the collection notice “did not disclose that the balance might increase due to interest and fees,” it was a “deceptive [or] misleading representation” of the amount due under the general prohibition of 15 U.S.C. § 1692e.  Id.

While the Islam court found Avila to be “factually distinguishable,” it held that Avila’s analytical framework dictated the outcome.  The court explained that the language of ARS’ letter – that Islam’s debt was $14,413.78 “as of the date of” the letter – suggested that Islam’s debt was in “a dynamic state.”  Islam, at *10.  “‘[A]s of the date’ suggests that on a different date, the amount of the debt may be different – and, of course, anyone would understand that it won't get any smaller without payment. But the undisputed fact is that, contrary to this suggestion, the amount of this debt will never be different, never get greater.”  Id.  Islam, as the embodiment of the “least sophisticated consumer,” was therefore “subtly incentivized to pay now to avoid paying more later, when, in fact, there never would be ‘more later.’”  Id.  This caused ARS to possibly receive money that it might not have received but for the language “as of the date of this letter,” which makes that language misleading or deceiving.  The court went on to hold that the misleading or deceiving communication was material, because if the least sophisticated consumer had known that the debt would never get any bigger, she might have chosen to pay another debt.  Id.  

This case serves as a troubling example of truthful statements being interpreted as misleading or deceiving.  See id. at *9 (“The courts are to some extent simply burdening the collection industry with a continuing portfolio of litigation that potentially raises the cost of credit for all consumers.”).  Though all statements in ARS’ letter were factually correct – including the statement that Islam’s debt was $14,413.78 as of the date of the letter – the letter was nevertheless deemed to be “misleading or deceiving” because the least sophisticated consumer may incentivized into paying a valid debt they might not have otherwise paid.  To comply with the reasoning of Islam, creditors and debt collectors may wish to craft demand letters without the phrase “as of the date of this letter” if the debt will not increase, or to maintain a policy under which charged off debt continues to accrue interest and fees.

Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group.