FYI: 5th Cir Holds CFPB's CID Did Not Adequately Advise of Alleged Violation

The U.S. Court of Appeals for the Fifth Circuit held that a civil investigation demand ("CID") issued by the Consumer Financial Protection Bureau ("CFPB") did not adequately advise the respondent of the nature of the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation.

 

Accordingly, the Fifth circuit reversed the ruling of the trial court granting the CFPB's petition for an order to enforce the CID.

 

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

 

Under 12 U.S.C. § 5562(c)(1), the CFPB may issue CIDs to "any person" whom the CFPB "has reason to believe" may have documents, tangible things, or information "relevant to a violation."

 

Each CID must "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation."  12 U.S.C. § 5562(c)(2). 

 

This is known as "notification of purpose."  12 C.F.R. § 1080.5.  If a recipient does not comply with the CID, the CFPB may file a petition in federal court to enforce it.  12 U.S.C. § 5562(e)(1).

 

Here, the CFPB issued a CID to a company ("Company") that provides public records to the public through an internet-based search engine.

 

The CID's "Notification of Purpose" read: "The purpose of this investigation is to determine whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act . . . or any other federal consumer financial law.  The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest."

 

During a meet and confer with the CFPB, the Company asserted that the Notification of Purpose was inadequate, and that the CFPB did not have jurisdiction over it.  The Company then filed a petition with the CFPB to set aside the CID, which was denied.

 

The CFBP then filed a petition in federal court seeking an order to enforce the CID.  The trial court rejected the Company's argument that the CID failed to provide fair notice of the violation under investigation as required by section 5562(c)(2), and that the CFPB lacked jurisdiction.  Accordingly, the trial court ordered that the Company respond to the CID.

 

The Company appealed. 

 

On appeal, the Fifth Circuit determined that "[t]he CFPB did not comply with 12 U.S.C. § 5562(c)(2) when it issued this CID to [the Company]."  In so ruling, the Court noted that the CFPB did not state the "conduct constituting the alleged violation which [was] under investigation," rather the Notification of Purpose provided only that the CFPB was investigating "unlawful acts and practices in connection with the provision or use of public records information."

 

The Fifth Circuit determined that "this Notification of Purpose does not identify what conduct, it believes, constitutes an alleged violation."

 

Further, the CID did not identify "the provision of law applicable to such violation," as required.  Instead, the Notification of Purpose referred only "to the Fair Credit Reporting Act, an expansive law governing all activities relating to the reporting of consumers' credit information.  Such reference to a broad provision of law that the CFPB has authority to enforce does nothing to clarify what conduct is under investigation." 

 

Moreover, the Fifth Circuit noted that the Notice of Purpose's statement that the CFPB was investigating "any other federal consumer financial law" defeated "any specificity provided by the reference to FCRA."   

 

The Court further explained that a "reasonable relevance" standard applies to enforcement of administrative subpoenas.  Under the "reasonable relevance" standard, court will enforce an administrative subpoena if: "(1) the subpoena is within the statutory authority of the agency; (2) the information sought is reasonably relevant to the inquiry; and (3) the demand is not unreasonably broad or burdensome." 

 

The Fifth Circuit determined that "[b]ecause the CID issued to [the Company] fails to identify the conduct under investigation or the provision of law at issue, we cannot review it under our 'reasonable relevance' standard." 

 

As "the CFPB does not have 'unfettered authority to cast about for potential wrongdoing,'" it "must comply with statutory requirements."

 

The Fifth Circuit held "that the CFPB failed to advise [the Company] of 'the nature of the conduct constituting alleged violation which is under investigation and the provision of law applicable to such violation.'"  12 U.S.C. § 5562(c)(2). 

 

Thus, the ruling of the trial court was reversed.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
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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FYI: 8th Cir Rules Against Debtor Who Tried to "Provoke" FDCPA Violation

The U.S. Court of Appeals for the Eighth Circuit recently held that a consumer waived his right under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (FDCPA) to cease further communications by calling the debt collector and asking questions about the underlying debt.

 

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

 

A law firm obtained a judgment against a debtor in connection with a credit card debt.  The debtor was a former debt collector and had litigated a number FDCPA claim against other debt collectors. 

 

The law firm mailed a garnishment notice to the debtor's credit union in attempt to collect on the judgment.  Each time, the law firm also mailed a copy of the garnishment summons to the debtor, along with a similar cover letter.  The cover letter stated "[t]hese documents were served upon [the credit union].  If you have any questions, please contact one of our collection representatives at 800-514-0791."

 

The debtor called the telephone number on the cover letter and spoke with a representative of the law firm.  The representative broached the possibility of settling the debt, but only in response to the debtor s questions about the debt.  The debtor immediately told the representative that he had sent the law firm a cease and desist letter and suggested that the representative violated its directive.

 

The debtor filed a complaint alleging that the law firm violated sections 1692c(c) and 1692e(10) of the FDCPA by sending the garnishment summons cover letter and attempting to collect the debt over the phone.  The debtor alleged that this was a "bait-and-switch" scheme designed to deceive unsophisticated consumers.

 

The debtor sued the law firm in state court and the law firm removed the case to federal court.  The trial court granted the law firm's motion for summary judgment and dismissed the case with prejudice.

 

This appeal followed.

 

As you may recall, section 1692c(c) of the FDCPA requires a debt collector to cease further communications if the consumer notifies the debt collector in writing that he wishes to cease further communications with respect to such debt.  15 U.S.C. § 1692c(c).

 

Section 1692e of the FDCPA prohibits a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including the use of any false representation or deceptive means to collect or attempt to collect any debt."  15 U.S.C. § 1692e(10).

 

The Eighth Circuit applies the unsophisticated consumer standard to FDCPA claims.  Strand v. Diversified Collection Serv., 380 F.3d 316, 317 (8th Cir. 2004).  "This standard protects the uninformed or naive consumer, yet also contains an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collection letters."  Id., at 317-18.

 

The debtor argued that the law firm violated section 1692c(c) because the cover letter directed him to call the law firm, but rather than connecting him to someone that could answer questions about the garnishment summons, he was subjected to efforts to collect the debt. 

 

The debtor also argued that the law firm violated his rights under section 1692c(c) because he called only about the topic of the garnishment summons and did not wish to talk about the debt.

 

The trial court found that the debtor initiated the call "and the brief conversation regarding settling the underlying debt occurred only in response to [the debtor's] direct questions of what he was 'gonna do about' the debt."  The representative answered the debtor's questions by stating that the law firm was willing to settle the debt and asked if he was interested in doing so. 

 

The trial court noted that the law firm did not pressure or badger the debtor in any way.  It held that the debtor waived his cease communication directive by asking questions about the debt.  The trial court described the call as "an unsubtle and ultimately unsuccessful attempt to provoke [the law firm] into committing an FDCPA violation." 

 

The Eight Circuit agreed and found nothing improper about providing the debtor with a contact number in the cover letter.  Further, the Eight Circuit determined that "[the debtor's] waiver of his cease letter was "knowing and voluntary, just as it would be were he an unsophisticated debtor."" 

 

Thus, the Eighth Circuit held that the law firm did not violate section 1692c(c).

 

Next, the debtor argued that the law firm violated section 1692e(10), by falsely or deceptively communicating through the cover letter, that a collection representative could answer garnishment summons questions "when in fact the telephone number provided reaches those unable to discuss legal documents." 

 

However, the Eight Circuit did not find any inaccurate information in the cover letter.  The letter did not state that the number provided will be answered by an attorney prepared to answer question solely about garnishment.  Instead, it suggested that a collection representative could be reached at the listed number, and that proved to be true.

 

Regarding the debtor's allegation that the letter accompanying the garnishment summons was a scheme to work around his directive to cease communication, the Eight Circuit stated that "this is the exact sort of peculiar interpretation against which debt collectors are protected by the objective element of the unsophisticated consumer standard."

 

Accordingly, the Eighth Circuit affirmed the trial court's order granting the debt collector's motion for summary judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
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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FYI: 7th Cir Holds Trial Court Erred in Reducing Punitive Damages Without New Trial

The U.S. Court of Appeals for the Seventh Circuit held that the trial court erred when it reduced the plaintiff's punitive damages award without giving him the option of a new trial on damages. 

 

Accordingly, the Seventh Circuit reversed the ruling of the trial court, and remanded the matter for the court to offer the plaintiff the option of a new trial on damages. 

 

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

 

An inmate plaintiff ("Plaintiff") filed a complaint against members of a prison's medical staff and administrative team alleging they were indifferent to his serious medical need in violation of the Eighth Amendment.  Plaintiff subsequently added the defendant health care company ("Defendant"), which provided medical care to inmates in Illinois prisons. 

 

Following a trial, the jury awarded Plaintiff $10,000 in compensatory damages and $500,000 in punitive damages. 

 

However, the Defendant argued that the punitive damages award violated the Fourteenth Amendment's prohibition on excessive or arbitrary punishment.  The trial court agreed and reduced the punitive damages to $50,000. 

 

Initially, the trial court also gave Plaintiff a choice between retrying the issue of punitive damages and accepting the reduced award, but later withdrew the option and entered a judgment that awarded only $50,000 in punitive damages (plus the jury's compensation award). 

 

Plaintiff appealed, arguing that the trial court erred in reducing the jury's award of punitive damages without offering him a new trial.

 

In analyzing the issue, the Seventh Circuit first noted that "excessive punitive-damages awards violate the Due Process Clause."  Further, the Supreme Court of the United States (SCOTUS) has "instructed courts to review whether an award of punitive damages exceeds the Due Process Clause's bounds by considering the reprehensibility of the defendant's conduct, the ratio between punitive and compensatory damages, and any civil penalties that punish similar behavior." 

 

The Seventh Circuit then observed that the trial court applied these guidelines to conclude "that an award of punitive damages equal to fifty times compensatory damages violates the Due Process Clause and must be reduced."  The Court noted that this was "consistent with the Supreme Court's caution that few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process."

 

However, although the trial court's ruling was consistent with the SCOTUS guidelines, "[t]he decision to limit punitive damages to five times compensatory damages was arbitrary," and the trial court did not explain why it "chose a multiplier of five, rather than seven, or three, or nine and one-half." 

 

Thus, "[t]he prudent course when a district court reduces a punitive-damages award is to offer the plaintiff a choice between the reduced award and a new trial, for the jury rather than the judge has the principal responsibility for factual evaluations." 

 

Because the trial court did not offer Plaintiff a new trial, the Seventh Circuit held that its "judgment must be vacated and the case remanded for the court to offer [Plaintiff] the option of a new trial." 

 

However, the Court further clarified that it did "not decide whether the Seventh Amendment prohibited the court from unilaterally reducing [Plaintiff's] award on constitutional grounds." 

 

Instead, the Seventh Circuit noted that the SCOTUS has "not resolved that issue, and the district court should not have addressed it either.  Neither party asked the district court to decide whether the Seventh Amendment allows a judge to reduce punitive damages without offering a new trial as an alternative." 

 

Thus, the trial court should not have created that issue, but instead "Plaintiff must be given the option of a new trial as a matter of sound procedure, not constitutional law." 

 

The Seventh Circuit further explained that if Plaintiff chose a new trial on remand, "the jury must be allowed to consider both compensatory and punitive damages," but "a second jury need not consider [Defendant's] liability."

 

Plaintiff also asked the Seventh Circuit to "decide whether he is entitled to punitive damages exceeding five times the compensatory award."  However, "because the district court held that the jury's award of punitive damages violated the Due Process Clause, reviewing the merits of the district court's decision to cap punitive damages at five times compensatory damages would require unnecessary constitutional analysis, which is to be avoided."

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
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   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   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.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

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and

 

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and

 

California Finance Law Developments