Wednesday, February 28, 2018

Guest Post: Supreme Court Clarifies Scope Of Whistleblower Protections Under Dodd-Frank

By: Connie E. Carrigan
February 27, 2018

On February 21, 2018, in the case of Digital Realty Trust, Inc. v. Somers, the United States Supreme Court unanimously decided that employees who raise internal complaints about possible violation of securities laws are not protected as whistleblowers under the Dodd-Frank Act.  In order to obtain protection from retaliatory measures undertaken by their employers, such complaints must be reported to the Securities and Exchange Commission (SEC). 

The Dodd-Frank Act was enacted in 2010 in an effort to protect consumers from abusive practices by financial service providers.  While the Act itself specifically limits the definition of whistleblower to only those employees who make a report of suspected securities violations to the SEC, the regulations interpreting the Act’s anti-retaliation provisions extend its protections well beyond the statute.  In reliance upon these regulations, several federal circuit courts throughout the nation adopted the expansive interpretation on the basis that it reflected Congressional intent.  This created a split in the circuits as other courts strictly applied the Act’s narrow definition of what actions constitute protected whistleblower activity.

In determining that the whistleblower protections are limited to those who report violations to the SEC and in rejecting the employee’s assertion that his report of inappropriate activity to senior management was sufficient to trigger Dodd-Frank protections when his employment was terminated, the Supreme Court distinguished such protections from those contained in the Sarbanes-Oxley Act enacted in 2002 for the purpose of regulating the financial services industry and curbing securities violations.  Both Acts forbid retaliation for reporting unlawful conduct.  However, the Sarbanes-Oxley Act contains a more expansive whistleblower protection by protecting employees who provide information to federal agencies, to Congress, or to “a person with supervisory authority over the employee.” 

Justice Ruth Bader Ginsberg, writing for the Court, reasoned that the “core objective” of Dodd-Frank was to aid the SEC’s enforcement efforts by rewarding those who report suspected violations of securities law to the SEC.  The Dodd-Frank Act unambiguously provides that a whistleblower is a person who provides “information relating to a violation of the securities laws to the [Securities and Exchange] Commission.”  Justice Ginsberg further reasoned that the Court’s narrow interpretation of the Act nevertheless accomplishes the Act’s objective of protecting whistleblowers so long as they report misconduct to the SEC and that the Act’s anti-retaliation provisions appropriately serve to protect employees, attorneys, and auditors who may be required to make disclosures that are protected under any law subject to the SEC’s jurisdiction.

The Somers decision is welcome news to employers as it limits the scope of reports which are protected by the Dodd-Frank Act to those which have been asserted directly to the SEC, thereby protecting employers from defending against retaliation claims raised by employees who have only made such complaints internally.  However, the fact that the Dodd-Frank Act incentivizes employees to report inappropriate activity to the SEC by tempting them with lucrative whistleblower awards should not be taken lightly.  The fact remains that pursuant to various federal and state whistleblower protections, employers are obligated not to retaliate against employees who disclose suspected violations of law.  A zero-tolerance policy with regard to such retaliation is recommended.  Employers should ensure that all reports of wrongdoing are taken seriously and are effectively, fairly, and consistently investigated.

Connie Carrigan is a partner with Smith Debnam Narron Drake Saintsing & Myers, LLP's Employment Law Group.  If you have questions about the impact of this decision or any other matter relating to employment practices, please contact Connie at

Tuesday, February 27, 2018

Third Circuit Holds Settlement Offer on Time-Barred Debt States Plausible FDCPA Claim

Settle (verb): “to conclude (a lawsuit) by agreement between parties usually out of court.

Merriam Webster Dictionar
The Third Circuit has refined its position as to whether collection of time-barred debt may violate the FDCPA where the communication involves an offer to settle.  In doing so, the Court joined the Fifth, Sixth and Seventh Circuits in holding that, even absent a threat of litigation, offers to settle time-barred debts could mislead the least sophisticated consumer.

In Tatis v. Allied Interstate, LLC, 2018 U.S. App. LEXIS 3238 (3rd Cir. Feb. 12, 2018), the debt collector sent a letter that read

“[The creditor] is willing to accept payment in the amount of $128.99 in settlement of this debt.  You can take advantage of this settlement offer if we receive payment of this amount or if you make another mutually acceptable payment arrangement within 40 days.”

Tatis at *1-2.  Tatis filed suit asserting that the letter violated section 1692e of the FDCPA.  Specifically, the consumer alleged that the word “settlement” meant she had a legal obligation to pay the debt and was a false, deceptive or misleading representation or means to collect a debt.  Allied’s motion to dismiss was granted by the district court which relied on prior Third Circuit precedent, Huertas v. Galaxy Asset Management, 641 F.3d 28 (3rd Cir. 2011).  The district court held that “an attempt to collect a time-barred debt does not violate the FDCPA unless it is accompanied by the threat of legal action.”  Id. at *3.

On appeal, the issue before the Court was “whether collection letters may run afoul of the FDCPA by misleading or deceiving debtors into believing they have a legal obligation to repay time-barred debts even when the letters do not threaten legal action.”  Id. at *8. The Court held they may.

At the outset, the Court distinguished its prior opinion in Huertas by noting the language in that letter did not refer to a settlement.  Instead, in Huertas, the debt collector informed Huertas that his debt had been reassigned and requested that he contact the agency “to resolve the issue.”  The Court concluded that Huertas “stands for the proposition that debt collectors do not violate 15 U.S.C. §1692e(2)(A) when they seek voluntary repayment of stale debts so long as they do not threaten or take legal action.” Id. at *7.

The Court then rejected Allied’s argument that because the letter did not threaten legal action, there was no violation of the statute.  Joining the Fifth, Sixth and Seventh Circuits, the Court was persuaded by the fact that major dictionaries include within the meaning of “settle” and “settlement” a definition that refers to the conclusion and/or avoidance of a lawsuit. The Court noted that section 1692e contains three distinct categories of prohibited conduct: false, misleading and deceptive representations and noted that “misleading” representations can include more than falsehoods.  Refusing to provide a narrow interpretation of the FDCPA, the Court declined to require an actual threat of litigation.  Instead, the Court held that “[b]ecause the words “settlement” and “settlement offer” could connote litigation, the least-sophisticated debtor could be misled into thinking Allied could legally enforce the debt.”  Id. at *13.

For what it’s worth, the Court then attempted to step back from its decision by stating the following:

·        “We reiterate what we said both in Huertas and elsewhere: standing alone, settlement offers and attempts to obtain voluntary repayments of stale debts do not necessarily constitute deceptive or misleading practices.”

·        “Nor do we impose any specific mandates on the language debt collectors must use, such as requiring them to explicitly disclose that the statute of limitations has run.”

·        “We do not, therefore, hold that the use of the word “settlement” is misleading as a matter of federal law.”

So, what are the take-aways?

·        The use of words like settle and settlement are increasingly thorny in the context of time-barred debt;

·        A reminder as to context (both procedural and factual)

o   Tatis involved reversal of a motion to dismiss.  The Court’s holding should be viewed in context: that the debtor plausibly stated a claim under Rule 12 – nothing more.

o   The Court also makes clear that the letter must be read in context.  Plausibly, there are circumstances where the use of words ‘settle’ and ‘settlement’ might, in context, not be misleading.

Thursday, February 22, 2018

CFPB’s Strategic Plan Reflects New Path

Photo by jesse orrico on Unsplash
Last week, the CFPB issued its Strategic Plan for Fiscal Years 2018-2022.  The Plan reflects Acting Director Mick Mulvaney’s vision for the CFPB and reflects a contrasting vision to what was reflected in the prior draft which was circulated in October prior to Cordray’s resignation.  Here are the key points:

·        No More Pushing the Envelope. In a nutshell, the CFPB’s strategy is now to “fulfill the Bureau’s statutory responsibilities, but go no further.”

·        A New Vision.  The prior draft emphasized transparency in pricing. The new strategy emphasizes a free market economy.  Specifically, “[f]ree, innovative, competitive, and transparent consumer finance markets where the rights of all parties are protected by the rule of law and where consumers are free to choose the products and services that best fit their individual needs.”

·        A Departure from Paternalism.  One needs to look no further than the strategic goals listed under the draft plan and the final plan to understand that the paternalistic approach the CFPB formerly took as to consumers is gone. 

o   The Draft Plan. Under the draft plan (Cordray’s), four goals were set forth:

§  “prevent financial harm to consumers while promoting good practices that work for consumers, responsible providers, and the economy as a whole”;

§  “empower consumers to make informed financial choices to reach their own life goals and enhance their own financial well-being”;

§  “inform the public, policy makers, and the CFPB’s own policy-making with market intelligence and data-driven analysis of consumer financial markets and consumer behavior”; and

§  “advance the CFPB’s performance by maximizing resource productivity.” 

o   The Final Plan. Significantly, the Plan in its final form omits any reference to prevention of harm and the use of data driven information to inform policy.  Instead, the three goals presented confirm the Bureau’s new path: one that does not push the envelope and encourages access to financial products.  The three goals set forth are:

§  “ensure that all consumers have access to markets for consumer financial products and services”;

§  “implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive”; and

§  “foster operational excellence through efficient and effective processes, governance, and security for resources and information.” 

Our Take Aways:

·        It’s interesting to note that Mulvaney is only the acting director.  Rather than maintaining the status quo until a permanent replacement is named, Mulvaney has chosen to change the direction of the Bureau and submit a revised Strategic Plan which makes wholesale changes to the draft plan.

·        While the Final Plan de-emphasizes the CFPB’s enforcement powers, it does make clear the CFPB will “[f]ocus supervision and enforcement resources on institutions and their product lines that pose the greatest risk to consumers based on the nature of the product, field and market intelligence, and the size of the institution and product line.”

·        The Final Plan’s third goal, fostering operational excellence, appears to be a jab at Cordray’s administration and a nod in favor of Cordray’s critics.  As explained further, in order to “foster accountability, the Bureau will monitor and conduct periodic evaluations of operations to ensure effective management of resources and risk” including maintaining a responsive cybersecurity program and maintaining a diverse and inclusive workforce.

·        Finally, the Plan is silent as to Mulvaney’s intentions as to existing enforcement actions and rules which are in progress or future rulemaking by the Bureau.

Sunday, February 11, 2018

Seventh Circuit in Boucher: Miller Safe Harbor Language Does Not “Immunize” Debt Collectors from Liability for Violations of § 1692e

By Zachary K. Dunn

Eighteen years ago, the Seventh Circuit crafted “safe harbor” language which, if used, shielded debt collectors from liability under 15 U.S.C. § 1692g. A recent decision, Boucher v. Fin. Sys. of Green Bay, 2018 U.S. App. LEXIS 1094 (7th Cir. 2018), now calls that safe harbor language into question and subjects collectors to liability under another section of the Fair Debt Collection Practices Act (“FDCPA”), § 1692e, for use of the language the court itself drafted.


Section 1692g requires debt collectors to disclose, among other information, the “amount of the debt” a consumer owes. See 15 U.S.C. § 1692g(a)(1). This requirement is particularly onerous, as many debts are subject to fees, interest, and other charges which can increase the amount of the debt owed on a daily basis.  To help deal with this reality, the Seventh Circuit in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872 (7th Cir. 2000) fashioned safe harbor language which, the Court held, satisfied the debt collector’s duty to state the “amount of the debt.” Commonly known as the Miller safe harbor, the language reads as follows:

As of the date of this letter, you owe $ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].

Miller, 214 F.3d at 876.  After Miller, many debt collection companies began including this or similar language in communications with debt collectors. In Boucher v. Fin. Sys. of Green Bay, 2018 U.S. App. LEXIS 1094 (7th Cir. 2018), however, the Seventh Circuit called into question the propriety of relying on the Miller safe harbor language in communications with consumers by holding that such language was misleading under § 1692e, which broadly prohibits the use of any “false, deceptive, or misleading representation or means in connection with the collection of any debt.”


In Boucher, the debt collector, Finance System of Green Bay (“Green Bay”), was collecting upon medical debt and sent a letter to a consumer that included the Miller safe harbor language. The Seventh Circuit held that the safe harbor language – which was included in the letter to satisfy § 1692g and comply with Miller – was “false, deceptive, or misleading” within the meaning of § 1692e.  According to the Court, because Wisconsin law prohibits debt collectors from imposing “late charges or other charges” (beyond interest) on medical debt, the letter “falsely implies a possible outcome—the imposition of ‘late charges and other charges’—that cannot legally come to pass.” Id. at *9. Although the Miller language is not misleading or deceptive on its face, the Court found it may “nevertheless be inaccurate” under certain circumstances.


In reaching this result, the Court held that debt collectors cannot “copy and paste the Miller safe harbor language to avoid liability under § 1692e.” Troublingly, the Court held that “[a]lthough the safe harbor was offered in an attempt both to bring predictability to this area and to conserve judicial resources, it is compliance with the statute, not our suggested language, that counts.” Since “judicial interpretations cannot override the statute itself,” the Court implicitly suggested that debt collectors may need to ignore judicial opinions interpreting the statute, as the Court may interpret the statute differently in the future.


What does Boucher mean for Debt Collectors?


After Boucher, debt collectors cannot simply include Miller’s language to communications with consumers and be protected from liability under § 1692g and § 1692e. Debt collectors must consider all of the circumstances, including the requirements of state law, and determine whether the Miller language is accurate before including it in a communication with a consumer. This includes providing detailed information from which an unsophisticated consumer can determine whether their debt will increase.
Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group

Friday, February 9, 2018

Sharing of Convenience Fees Spells Trouble Under the FDCPA

A recent opinion from a district court in California serves as a reminder to creditors and debt collectors of the limited circumstances upon which convenience fees can be collected.  In Lindblom v. Santander Consumer USA, 2018 U.S. Dist. LEXIS 993313267 (E.D. Cal. Jan. 22, 2018), the consumer was offered a variety of methods for payment.  While some of the options were free, the consumer opted to make several payments using a “speedpay” service through Western Union.  Use of the service cost the consumer $10.95 per use.  Through a fee sharing agreement, Santander and Western Union split the convenience fee. The consumer brought a putative class action asserting that Santander’s collection and retention of the Speedpay fees violated section 1692f(1) of the FDCPA.   Santander filed a motion for summary judgment asserting that plaintiffs expressly authorized the Speedpay fees when they knowingly agreed to use the Speedpay service.

Section 1692f(1) prohibits the collection of “any amount (including any interest, fee, charge or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”  Relying on provisions of state law which allow a written contract to be modified by an oral agreement, Santander contended that each time the consumer used Speedpay, she and Santander modified the underlying contract to allow that fee.  The court was not persuaded.  Because the parties’ underlying contract did not address the Speedpay fees in any manner, the court concluded that there could be no oral modification.  “An ‘oral modification’ presupposes an existing term or provision in writing.” Lindblom at *17.  Further, because the plaintiff was not informed that Santander was keeping a portion of the Speedpay fee, the plaintiff could not have knowingly agreed to the modification.  The court was further persuaded by the fact that Section 1692f(1)’s purpose is to preclude debt collectors from implementing a method to increase their compensation through the collection of service charges in addition to the underlying debt.

Left unanswered by the court is the question of whether a different result would have been reached had the fee represented the actual cost of the transaction and not been shared with the creditor.  Those facts would likely present a closer question, but creditors and debt collectors should use caution when determining whether to pass along convenience fees to consumers as a number of jurisdictions and the CFPB have raised concerns with the same.

Thursday, February 1, 2018

Tenth Circuit Joins the Fray Regarding Whether Foreclosures Are Debt Collection Activity

The Tenth Circuit has weighed in on whether a non-judicial foreclosure is debt collection activity.  In doing so, the Tenth Circuit has joined a split in the circuits on the issue.  With the Tenth Circuit’s decision the circuits remain split with the Ninth Circuit and now the Tenth Circuit holding that non-judicial foreclosures are not debt collection activity and the Fourth, Fifth and Sixth Circuits holding that they are.

  In Obduskey v. Wells Fargo, 2018 U.S. App. LEXIS 1275 (10th Cir., Jan. 19, 2018), Wells Fargo retained foreclosure counsel who sent the consumer an initial communication which stated that it “MAY BE CONSIDERED A DEBT COLLECTOR ATTEMPTING TO COLLECT A DEBT” and advised Mr. Obduskey that it had been retained to initiate foreclosure proceedings.  The letter referenced the amount owed and identified the current creditor as Wells Fargo.  In response, the consumer requested validation of the debt.  Instead of responding, the law firm initiated a non-judicial foreclosure.  Mr. Obduskey then filed suit alleging the law firm violated 15 U.S.C. §1692g. 

The law firm moved to dismiss the action asserting that it was not a debt collector covered by the FDCPA because a foreclosure proceeding is not a debt collection activity.  The district court agreed and dismissed the complaint.  On appeal, the Tenth Circuit addressed the issue of whether the FDCPA applies to non-judicial foreclosure proceedings.  

In doing so, the court first looked to the plain language of the statute and the nature of a non-judicial foreclosure.  Adopting the rationale of the Ninth Circuit, the court took the position that the FDCPA only imposes liability when an entity is attempting to collect money.  Because a non-judicial foreclosure does not preserve the right to collect a deficiency personally against the mortgagor and would require a separate action to do so, the Court was persuaded that it was not an attempt to collect money and was only the enforcement of a security interest. 

The Court also found that policy considerations supported its decision. The Court took into consideration the provisions of Colorado’s non-judicial foreclosure statutes and noted that they conflicted with the FDCPA.  Specifically, the state provisions required notice to any party that may have acquired an interest in the property.  The state statute therefore conflicted with the third party prohibitions under the FDCPA.  The state provisions also conflicted with the FDCPA by requiring direct notice to the consumer even when represented by counsel. Taking this into account, the court found that there is no ‘clear and manifest’ intention on the part of Congress to supplant state non-judicial foreclosure law. Indeed, many of the conflicts noted above are designed to protect the consumer and preempting them under the FDCPA would seem to undermine their purpose as well as the purpose of the FDCPA.”  Obduskey at *11-12 (internal citations omitted).

It is important to note that the Court’s decision is limited in several respects.  First, it is limited to non-foreclosure proceedings.  Secondly, the holding is limited to the facts of this case.  The court suggested that its holding might have been different had there been evidence of “aggressive collection efforts leveraging the threat of foreclosure into payment of money.” Id. at *12.  The court left that discussion for another day as there were no facts to suggest the law firm had demanded payment or used foreclosure as a threat to elicit payment.