Friday, January 8, 2021

FYI: 6th Circuit Rejects 'Benign Language' Exception in FDCPA Envelope Disclosure Claim

The U.S. Court of Appeals for the Sixth Circuit recently held that the plain language of 15 U.S.C. 1692f(8), a provision of the federal Fair Debt Collection Practices Act (FDCPA) regulating what may be shown on an envelope when a debt collector communicates with a consumer by mail, does not include a "benign language" exception.

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer appealed from a judgment entered against her after the district court granted a defendant's motion for judgment on the pleadings.

 

The consumer received a letter from the defendant demanding payment of a medical debt. The letter came in an envelope with two transparent glassine windows stacked on top of each other. Always visible through the lower window was the consumer's name and address. Likewise, always visible through the top window was an empty checkbox followed by the phrase "Payment in full is enclosed." Sometimes visible was also a second empty checkbox followed by "I need to discuss this further. My phone number is ___."

 

The consumer alleged that the visibility of the checkboxes and accompanying language "created the risk that anyone who caught a glimpse of Plaintiff's mail would recognize that she was receiving mail from a debt collector, causing her embarrassment and emotional distress." This, the consumer alleged, constituted a violation of 15 U.S.C. § 1692f(8), which prohibits a debt collector's use of "any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails…"

 

The defendant argued that Section 1692f(8) includes a "benign language" exception and that its letter did not violate the FDCPA because the markings were benign. The consumer argued that Section 1692f(8) should not be interpreted to include a "benign language" exception and, even if it did, the language visible through the glassine windows was not benign. The district court, noting a circuit split on the issue, agreed with the consumer, concluding that Section 1692f(8) should be read to include a "benign language" exception.

 

Because the appeal involved the interpretation of Section 1692f(8), the Court's task was to give effect to congressional intent. "If the language of the statute is clear, the court applies the statute as written." In re Corrin, 849 F.3d 653, 657 (6th Cir. 2017). However, where "the language is ambiguous or leads to an absurd result," courts may rely on extra-textual sources, such as legislative history or administrative guidance, to interpret a statute. Id.

 

On appeal, the consumer argued that the Court's interpretive task ends with the express text of the statute, which she maintained unambiguously forbids the markings visible through the glassine window. The defendant argued a literal reading of Section 1692f(8) would lead to absurd results, such that it is appropriate to go beyond the text of the statute and read a "benign language" exception – i.e., an exception for markings that do not indicate that a communication is from a debt collector – into the statute based on its legislative history and administrative guidance from the FTC.

 

Specifically, the defendant argued that Section 1692f(8) leads to an absurd result because it simultaneously endorses debt collectors' use of the mail to communicate with consumers while prohibiting debt collectors from including language and symbols on their envelopes that are necessary for communicating by mail – for example, the consumer's address and postage.

 

The Sixth Circuit noted a newly formed circuit split on this issue.

 

On one side, the Seventh Circuit has held that Section 1692f(8)'s plain text unambiguously prohibits markings on envelopes other than those "required for sending communications through the mail," the debt collector's return address, and, in limited circumstances, the debt collector's name. Preston v. Midland Credit Mgmt., Inc., 948 F.3d 772, 782, 784 (7th Cir. 2020).

 

On the other side, the Fifth and Eighth Circuits have held that Section 1692f(8) is ambiguous or that it leads to absurd results, invoking legislative history and administrative guidance to read a "benign language" exception into the statute. Strand v. Diversified Collection Service, Inc., 380 F.3d 316, 319 (8th Cir. 2004); Goswami v. American Collections Enterprise, Inc., 377 F.3d 488, 494 (5th Cir. 2004).

 

Here, the Sixth Circuit held that the consumer stated a claim for relief under Section 1692f(8) because its plain text forecloses a "benign language" exception. Relying on Preston, the Court noted that Section 1692f(8) "plainly sanctions the 'use of mails' to communicate with a debtor and therefore also sanctions the use of the language and symbols required for sending communications through the mail." Preston, 948 F.3d at 782.

 

"Put differently, the blanket prohibition on 'any language or symbol' is triggered only 'when communicating with a consumer by the use of the mail' and thus operates under the presupposition that the envelope used by the debt collector will employ those features necessary to facilitate its delivery. In this context, the provision's blanket prohibition is best understood as prohibiting 'any language or symbol' on the envelope other than 'language or symbols to ensure the successful delivery of the communication,' with a statutory carve-out for the debt collector's return address and its name (where the name does not indicate that the sender is a debt collector)."

 

The Sixth Circuit believed that its reading of Section 1692f(8) was fully consistent with the FDCPA's three stated purposes, more so than a "benign language" exception.

 

First, the Court believed that interpreting § 1692f(8) to exempt language and symbols that facilitate mail delivery serves to "eliminate abusive debt collection practices by debt collectors." 15 U.S.C. § 1692(e). In addition, prohibiting language and symbols on envelopes aside from what is required for efficient mail delivery furthers the purpose of preventing embarrassment resulting from conspicuous language visible on an envelope that indicates that the contents of the envelope pertain to debt collection.

 

Second, the Sixth Circuit believed that "interpreting § 1692f(8) to only language and symbols that facilitate mail delivery insures that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged." According to the Court, "[t]his reading of § 1692f(8) applies across the board to all debt collectors and provides an easy-to-follow, predictable rule." In contrast, "[a] more flexible approach to § 1692f(8) – like a 'benign language' exception – would incentivize gamesmanship, disadvantaging ethical debt collectors that are unwilling to push the limits of the rule in favor of their less scrupulous exceptions."

 

Third, the Court believed that its interpretation better "promotes consistent State action to protect consumers against debt collection abuses[,]" since bright-line rules are easier to apply consistently. 15 U.S.C. § 1692f(e). As the Court noted, "as more and more courts apply the 'benign language' exception it becomes increasingly difficult to reconcile the results."

 

According to the Sixth Circuit, "[r]easonable minds may differ as to whether markings on an envelope are benign, but there can be little disagreement as to whether markings on an envelope are required to facilitate mail delivery. Thus, the narrower reading of § 1692f(8) better promotes consistency in the enforcement of the FDCPA."

 

Accordingly, the Court reversed the judgment of the trial court and remanded for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, January 6, 2021

FYI: 9th Cir Upholds CFPB Director Kraninger's Ratification of Prior CID

The Consumer Financial Protection Bureau prevailed against a challenge to its authority in the U.S. Court of Appeals for the Ninth Circuit in the wake of last summer's Supreme Court of the United States ruling in Seila Law LLC v. Consumer Financial Protection Bureau.

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, in Seila Law, the Supreme Court found that the Bureau's structure of having a single director, subject to "for-cause" rather than "at-will" removal, was an unconstitutional violation of separation of powers. But the Supreme Court severed the offending provision, leaving the Bureau intact, and sent the case back to the Ninth Circuit on the issue of ratification. 

 

Seila Law grew from a civil investigative demand (CID) the Bureau had issued to the law firm. The CID had been issued under the Bureau's first director, Richard Cordray, and was subsequently ratified by its acting director, Mick Mulvaney.

 

Unlike the director, an acting director of the Bureau could be removed by the president "for cause" and so, the government argued, the CID at issue was effective because of the subsequent ratification. The Supreme Court declined to rule on this question, leaving it to the Ninth Circuit to answer.  

 

Ratification Cures Constitutional Defect

 

Meanwhile, to cure any constitutional defects resulting from the Supreme Court's decision, Bureau Director Kathleen Kraninger expressly ratified various actions the Bureau had taken during its period of unconstitutionality, including the CID issued to Seila Law.

 

As a result, the Ninth Circuit determined that it need not consider the ratification made by Acting Director Mulvaney and instead addressed the later ratification made by Director Kraninger.  Her ratification was challenged under the theory that because Seila Law found the Bureau's structure unconstitutional, actions taken by its director during the period of unconstitutionality cannot be fixed by the director's ratification.

 

In its Dec. 29 decision, the Ninth Circuit found that because Director Kraninger issued her ratification after the Supreme Court severed the "for cause" provision, it was issued at a time when the director knew the president could remove her with or without cause. Seila Law's only injury, the Court wrote, was that a CID was issued and enforced during a period when the Bureau was unconstitutionally structured.

 

"Any concerns that Seila Law might have had about being subjected to investigation without adequate presidential oversight and control have now been resolved," the Court wrote.

 

The Ninth Circuit rejected the argument that the CID could not be ratified because the Bureau lacked the authority to issue it in the first place. The Court found that the constitutional defect was limited to the director and "did not infect the agency as a whole."

 

Lower Courts Reach Similar Holdings

 

While the Ninth Circuit is the first circuit court of appeals to examine the effect of Director Kraninger's ratification on CFPB actions made prior to Seila Law, lower courts have rejected similar challenges.

 

In November, the U.S. District Court of Maryland held that because Seila Law did not "affect the CFPB's authority" when the defect was cured by the severing of the "for cause" provision, ratification by the director, who was then constitutionally sound, cured any defect.

 

Two days later a U.S. District Court of Rhode Island also held that Director Kraninger's ratification cured any defect arising from a CID issued during the period of unconstitutionality.

 

One More Case to Watch

 

Although the issue has been decided favorably for the Bureau, the U.S. District Court for the Southern District of New York remains to be heard. Prior to the Supreme Court's decision in Seila Law, this court held that a ratification of an enforcement action by then Acting Director Mulvaney did not cure constitutional defects arising from the "for cause" provision.

 

During the appeal of the case, Director Kraninger ratified the same enforcement action following the Seila Law decision. The Second Circuit then remanded the case to the district court to consider the "validity" of the ratification.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Monday, January 4, 2021

FYI: CFPB Announces FCRA Consent Order Involving "Internally Inconsistent" Reporting Data

The Consumer Financial Protection Bureau recently announced a consent order against a subprime automobile finance company for supposed violations of the federal Fair Credit Reporting Act resulting from allegedly systemic errors in data furnished to credit reporting agencies between January 2016 and August 2019.

 

The Bureau determined that the alleged errors "should have been readily apparent because the data for certain accounts was internally inconsistent."  Also, one CRA notified the company of certain reporting discrepancies, but this notification allegedly went unresolved.

 

A copy of the Consent Order is available at:  Link to Consent Order

 

The bulk of the Order alleges that the company engaged in a pattern of re-aging accounts.

 

During the affected time period, 35 percent of all instances in which the company furnished a date of first delinquency, this date equaled the date of account information.

 

The date of first delinquency is the field used in calculating when a tradeline should drop off of a consumer's credit report. Simply put, the date of first delinquency is the reporting date associated with the time the account first went into default and was not later cured. 

 

The Bureau explains the date of account information as the date the company "pulled information from its system of record each month in order to send" the information to credit reporting agencies.

 

According to the Bureau, "when furnishing in the Metro 2 format, furnishers like Respondent must provide the [date of account information] so that date is updated each month until the company stops reporting a tradeline."

 

While the Metro 2 reporting requirements are much more detailed and technical, essentially the consent order points out that these two dates are distinguishable and if an account is severely delinquent, then these dates should not match. In addition, it was noted that the company was reporting a date of first delinquency on accounts that were current.

 

The company was assessed a $4,750,000 civil money penalty. In addition to correcting the inaccuracies, the company is to establish a monthly audit process to assess the accuracy and integrity of the reporting information along with implementing policies and procedures.

 

The company consented to the issuance by stipulation without admitting or denying the findings.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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and

 

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