Fair Debt Collection Practices Act

iStock_000027020861_DoubleWe’ve often argued that when the principal rationale for approving a low-value class settlement is that the claims are weak, that is a signal that the case should not have been filed as a class action in the first place. The Second Circuit recently reached that exact conclusion when considering a proposed class settlement in a Fair Debt Collection Practices Act (FDCPA) case, holding that the putative class couldn’t be certified and that the FDCPA claims should be dismissed.

Continue Reading Second Circuit holds that class action seeking “meaningless” relief shouldn’t be certified

The spate of class actions under the Telephone Consumer Protection Act (TCPA) isn’t ending anytime soon. And the risks to businesses have just increased in the Third Circuit, thanks to that court’s recent ruling that the TCPA permits consumers to retract consent to receiving calls on their cell phones placed by automatic telephone dialing systems.

The TCPA prohibits making any call to a cell phone “using any automatic telephone dialing system or an artificial or prerecorded voice” unless (among various exceptions) the call is made with the “prior express consent of the called party.” 47 U.S.C. § 227(b)(1)(A)(iii). Courts have upheld various ways of demonstrating “express consent,” including:

  • verbally, such as when the consumer orally provides a cell phone number as a contact number (Greene v. DirecTV, Inc., 2010 WL 4628734 (N.D. Ill. Nov. 8, 2010)); 
  • in writing, such as when a contract authorizes cell phone calls (Moore v. Firstsource Advantage, LLC, 2011 WL 4345703 (W.D.N.Y. Sept. 15, 2011)); and 
  • through a third party, such as when a spouse authorizes cell phone calls (Gutierrez v. Barclays Bank Group, 2011 WL 579238 (S.D. Cal. Feb. 9, 2011)).

But once consumers have consented to receiving these calls, can they rescind their consent? The TCPA’s text is silent on the subject. And although the FCC’s 1992 TCPA Order indicates that consumers who provide their cell phone number can give “instructions” that they don’t agree to receive autodialer calls, the order doesn’t address whether the consumer can give those instructions long after initially providing the cell phone contact number.

By contrast, other privacy statutes—such as the CAN-SPAM Act, the Junk Fax Protection Act, and the Fair Debt Collection Practices Act—have express provisions allowing consumers to opt out of receiving communications at any time. A number of district courts have concluded that the lack of a corresponding express provision in the TCPA means that consumers don’t have the statutory right to retract consent once it has been given. See, e.g., Osorio v. State Farm Bank, F.S.B., 2012 WL 1671780 (S.D. Fla. May 10, 2012); Cunningham v. Credit Mgmt., L.P. (pdf), 2010 WL 3791104 (N.D. Tex. Aug. 30, 2010); Starkey v. Firstsource Advantage, L.L.C. (pdf), 2010 WL 2541756 (W.D.N.Y. Mar. 11, 2010).

But in Gager v. Dell Financial Services, Inc. (pdf), the Third Circuit sided with courts that have taken the opposite view. See Adamcik v. Credit Control Servs., Inc., 832 F. Supp. 2d 744 (W.D. Tex. 2011); Gutierrez, supra.

The Third Circuit gave three reasons for its holding. In my view, each one is questionable.

Continue Reading Third Circuit Rules that TCPA Authorizes Consumers To Retract Consent to Cell Phone Calls

The Fair Debt Collection Practices Act (FDCPA), which regulates the conduct of debt collectors, authorizes plaintiffs suing over violations to recover statutory damages of up to $1,000. Because these amounts can rapidly add up to exorbitant numbers in a class action for very minor, technical violations, Congress capped the total amount of statutory damages that may be sought for the absent class members in a class action at the lesser of $500,000 or 1 percent of the debt collector’s net worth. 15 U.S.C. § 1692k(a)(2)(B).

Now imagine that you’re a plaintiff’s lawyer who has stumbled across what appears to be a very widespread FDCPA violation committed by a national debt collector—say, an error in the standard dunning letter sent to debtors across the country. Why would you ever file a single nationwide class action in which the class recovery tops out at a half- million dollars (or less, depending upon the defendant’s assets)—which means that your fees in a settlement effectively would be capped at a third or a fourth of that amount—when you can file dozens, fifty, or a hundred smaller class actions in which you could recover the same amount in each case?

Of course, any such maneuver would  be a transparent evasion of FDCPA’s cap on aggregate statutory damages. And it would frustrate Congress’s goal of protecting debt collectors from being bankrupted by FDCPA class actions. Nonetheless, in LaRocque v. TRS Recovery Services Inc., No. 2:11-cv-91-DGH (D. Me. Jan. 2, 2013), a district court held that the nothing in the FDCPA prevents plaintiffs from atomizing their class actions in order to recover the statutory cap in a series of individual suits.

In LaRocque, the plaintiff—or perhaps her granddaughter, who was a paralegal at a FDCPA class action firm—noticed that a debt-collection letter she had received regarding a bounced check arguably violated the FDCPA. The plaintiff then filed a class action on behalf of a putative class of recipients of similar letters in Maine, and—after that class was certified—filed state-specific class actions in four other federal courts. In the case in Maine, the defendants moved to expand the Maine-only class into a nationwide class, arguing that allowing the plaintiffs to pursue a series of single-state classes would circumvent the FDCPA’s cap on statutory damages.

The court denied the request, noting that FDCPA’s cap on statutory damages is phrased differently than the later-enacted cap in the Truth in Lending Act, which specifies that the cap applies “in any class action or series of class actions.” 15 U.S.C. § 1640(a)(2)(B) (emphasis added). Previously, the Seventh Circuit also had concluded that FDCPA’s damages cap doesn’t require plaintiffs to seek certification of a nationwide rather than a single-state class. Mace v. Van Ru Credit Corp., 109 F.3d 338 (7th Cir. 1997). But in that case, the Seventh Circuit observed that its holding might have to be revisited if a plaintiff ever actually brought “multiple or serial class actions to recover for the same misconduct.” Id. at 344. The district court in LaRocque, however, declined to analyze the issue substantively because other district courts presented with it hadn’t done so either.

So what should a defendant do if targeted by a wave of small class actions designed to avoid FDCPA’s cap on total damages in a class action? One approach would be to raise the issue that the Seventh Circuit left undecided in Mace and argue that the FDCPA should be read to bar plaintiffs from evading it by subdividing nationwide or multi-state class actions into a series of smaller class actions. Indeed, otherwise nothing would stop plaintiffs from bringing a separate class action for the smallest number of people that would satisfy the numerosity requirement. This tactic brings to mind Chief Justice’s hypothetical during oral argument in Standard Fire Insurance Co. v. Knowles—the case on whether plaintiffs can avoid removal under CAFA by stipulating that the class recovery would be less than the $5 million amount-in-controversy requirement—of a lawyer filing one class action for people “whose names begin with A to K” and another for “people whose names begin L to Z.”

Alternatively, the defendant could reframe the argument as a challenge to the superiority of an artificially small class action. Rule 23(b)(3) permits class certification only if the proposed class “is superior to other available methods for fairly and efficiently adjudicating the controversy,” and requires the court to consider (among other things) “the extent and nature of any litigation concerning the controversy already begun by or against class members” and “the desirability or undesirability of concentrating the litigation of the claims in the particular forum.” Fed. R. Civ. P. 23(b)(3)(B)-(C). In a FDCPA class action, litigating a wave of mini-class actions would be less efficient than a single nationwide class action and would increase the defendant’s liability—perhaps by 50 times or more—in ways that Congress did not intend.

If neither of these approaches succeeds, a defendant could argue that the court should exercise its discretion under FDCPA to reduce the amount of statutory damages awarded in consideration of the size of the class and the pendency of actions in other jurisdictions.

Readers of this blog are likely familiar with the Telephone Consumer Protection Act (“TPCA”), the law that prohibits certain types of calls using an automatic telephone dialing system or prerecorded message. The plaintiffs’ bar has filed numerous class actions seeking statutory damages under the TCPA.  Businesses facing these actions should be alert for opportunities to defend themselves by invoking the TCPA’s exception from liability for calls made with the “prior express consent” of the recipient.  A recent decision, Balthazor v. Central Credit Services, Inc., No. 10-cv-62435 (S.D. Fla.), illustrates how this exception can be used to defeat class certification in TCPA class actions. Continue Reading Balthazor: Individualized Questions as to Consent Torpedo Attempt to Certify TCPA Class Action

The Second Circuit’s recent decision in Hecht v. United Collection Bureau, Inc., No. 11-1327 (2d Cir. Aug. 17, 2012), should sound alarm bells for any business that attempts to settle a class action.  The takeaway from the decision is to make sure that  notice of the settlement to absent class members is adequate. Under some circumstances, a single notice in the USA Today won’t cut it. And if it doesn’t, the release in the settlement won’t be worth the paper it’s printed on, and other plaintiffs will be free to bring the exact same class action against you.

Continue Reading Second Circuit: Insufficient Notice of Class Action Settlement Means That Class Members Can Bring Copycat Class Actions