Decisions of Note Feed

The CFPB Rolls Out New Regulations for Debt Collection

By Amy Egerton-Wiley

CallDebt collectors have for years sought guidance on how and when digital messages could be sent to contact consumers.  On Tuesday, the Consumer Financial Protection Bureau (CFPB) announced a notice of proposed debt collection regulations that would provide that guidance.  The new regulations would expand the potential avenues by which debt collectors could contact consumers and would establish a host of other regulations that would alter debt collection practices.  The proposed rulemaking announced by the CFPB is more than 500-pages long and would be the first substantive rules to interpret the Fair Debt Collection Practices Act, which regulates the debt collection industry. 

The CFPB identified several main highlights that the proposed rulemaking would achieve, including establishing a bright-line rule limiting call attempts and telephone conversations, clarifying consumer protection requirements for certain consumer-facing debt collection disclosures, clarifying how debt collectors can communicate with consumers, prohibiting suits on time barred debts, and requiring communication before credit reporting. 

The new regulations would allow debt collectors to expand methods of communicating with consumers, such as exploring WhatsApp or other online models.  They also, however, restrict the abilities of debt collectors to contact consumers.  For example, the proposed rules would cap the number of times a debt collector could call a consumer to seven times in one week, and once the debt collector reached the consumer, it would not be able to contact the individual again for another week.  The bureau cited increased clarity and modernizing the legal regime as its goal for the new regulations. 

The CFPB’s statement and proposed rules can be found here.


US Supreme Court Holds that Classwide Arbitration is Unavailable Unless the Parties Clearly Agree to It

   

By: Michael T. BrodyGabriel K. GillettHoward S. Suskin and Adam G. Unikowsky

Supreme Court Pillars - iStock_000017257808LargeOn April 24, 2019, the US Supreme Court issued its decision in Lamps Plus, Inc. v. Varela, No. 17-988, holding that classwide arbitration is not available unless clearly authorized by the parties.[1]  In a 5-4 decision authored by Chief Justice Roberts, the Court reasoned that when an arbitration agreement is ambiguous or silent about classwide arbitration, the parties have not actually agreed to it.[2]  As a result, the Federal Arbitration Act (FAA) does not allow a party to be forced into classwide arbitration based on an ambiguous agreement, even if state-law contract interpretation principles would construe ambiguity against the agreement’s drafter.[3]

Lamps Plus is just the latest in a long string of victories for arbitration advocates.  Building on prior decisions rejecting classwide arbitration in the consumer and employment contexts, the Court has now suggested that classwide arbitration is presumptively unavailable and that a clear expression of intent is required to overcome that presumption.  The practical result is that classwide arbitration may only be available against corporate defendants that specifically subject themselves to it.  And that may be a null (or very small) set, at least for companies that take the majority opinion’s view that classwide arbitration “‘sacrifices the principal ad­vantage of arbitration—its informality—and makes the process slow­er, more costly and more likely to generate procedural morass than final judgment.’”[4]

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En Banc Ninth Circuit Rejects Compelled Commercial Speech Ordinance on First Amendment Ground

By Gabriel K. Gillett

Beverage1Last week the en banc Ninth Circuit unanimously struck down San Francisco’s ordinance requiring warnings on ads for certain sugary beverages as a violation of the First Amendment.  In American Beverage Ass’n v. City and County of San Francisco, No. 16-16072, the court held that the Ordinance is an “unjustified or unduly burdensome disclosure requirement[] [that] might offend the First Amendment by chilling protected commercial speech.”  Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985).  (Jenner & Block filed an amicus brief in the case, on behalf of the Retail Litigation Center.) 

Four of the eleven judges who participated joined three special concurrences, however, explaining why they believed the majority had erred even though it reached the right result.  Those three concurrences highlight a number of issues related to commercial speech for courts to address in the wake of the Supreme Court’s decision in National Institute of Family & Life Advocates v. Becerra (NIFLA), 138 S. Ct. 2361 (2018).   
 

San Francisco’s “Sugar-Sweetened Beverage” Ordinance

The American Beverage Association v. City and County of San Francisco centers on a 2015 ordinance that required ads for certain “Sugar-Sweetened Beverages” to include the following:  “WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco.”  Slip op. 8.

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SDNY Extends RD Legal Funding Dismissal to the NYAG; CFPB Appeals

By Nicolas G. Keller

new updateOn September 12, 2018, Judge Loretta Preska of the District Court for the Southern District of New York dismissed the New York State Attorney General’s (“NYAG”) suit against RD Legal Funding, LLC, and related entities (collectively, “RD Entities”)[1] for allegedly defrauding individuals awaiting payouts from two separate funds—the September 11th Victim Compensation Fund of 2011 (“VCF”) and the fund arising out of the NFL Concussion Litigation Settlement Agreement (“NFL Fund”).[2] The Court’s ruling demonstrates the potentially far-reaching implications of the ongoing debate over the constitutionality of the CFPB’s structure in terms of not only the CFPB’s enforcement actions but also those of state actors. 

The lawsuit, commenced jointly by the NYAG and the Consumer Financial Protection Bureau (“CFPB”) in February 2017, alleges that the defendants’ transactions with individuals that the defendants characterized as “purchases” or “assignments” of VCF or NFL Fund payouts are substantively high-interest loans.[3] The CFPB and the NYAG assert that the alleged loans are usurious and violate provisions of the Consumer Financial Protection Act (“CFPA”)—also known as Title X of the Dodd-Frank Act—and various New York state fraud and usury laws.[4]

Nearly three months ago, on June 21, the Court dismissed the CFPB from the suit.[5] The gist of the Court’s holding, which we wrote more about here, was that the CFPB’s structure as an independent agency headed by a single director who can be removed by the President only for cause violates separation of powers.[6]  And the Court ruled that the remedy for this constitutional infirmity is to strike the CFPA in its entirety, thereby leaving the CFPB without the authority to bring suit.[7]  The Court also noted that:

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SDNY Rules CFPB Unconstitutional, Creating Split of Authority and Raising New Questions

   

By Joseph L. Noga, Michael W. Ross, Justin C. Steffen and Kashan Pathan

-Since its inception, the Consumer Financial Protection Bureau (the “CFPB”) has faced controversy over its structure as an independent agency headed by a single director who can be removed by the President only for cause. Critics have invoked the unitary executive theory to argue that the Constitution permits an agency to enjoy independence from at-will termination by the President only if the agency is headed by multiple commissioners, directors, or board members.[1] About six months ago, the D.C. Circuit took a step toward silencing those critics by rejecting en banc a constitutional challenge to the CFPB’s structure.[2] But in another twist, two weeks ago news broke that the issue may remain unsettled, because in Consumer Fin. Prot. Bureau v. RD Legal Funding, LLC, U.S. District Judge Loretta Preska of the Southern District of New York explicitly rejected the PHH majority opinion and held the CFPB’s structure to be unconstitutional.[3] As discussed below, the new split of authority raises interesting questions going forward.

The SDNY Ruling

In RD Legal Funding, the defendant companies had offered cash advances to consumers waiting for settlement payouts. The CFPB and the New York Attorney General (the “NYAG”) alleged that these transactions were not sales transactions but loans and that these loans were made in violation of certain provisions of the Consumer Financial Protection Act (the “CFPA” or the “Act”).[4] Defendants moved to dismiss the complaint on three grounds, including that the CFPB is unconstitutionally structured and therefore lacks authority to bring claims under the CFPA.[5]

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The US Supreme Court Allows Collection of State Sales Tax From Remote Sellers

 

By Adam G. Unikowsky and Leonard R. Powell

SCOTUSOn June 21, 2018, the US Supreme Court issued its much-anticipated decision in South Dakota v. Wayfair, Inc., No. 17-494.  In a 5-4 opinion by Justice Kennedy, the Court held that the Dormant Commerce Clause does not bar a state from requiring an out-of-state seller lacking in-state physical presence to collect and remit sales tax.  In reaching this conclusion, the Court took the unusual step of overruling two of its own prior opinions: National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967), and Quill Corp. v. North Dakota, 504 U.S. 298 (1992).  The Court held that stare decisis was an insufficient basis to uphold a rule it viewed as anachronistic, particularly in light of the explosive growth of e-commerce.

Wayfair is a major victory for states, who can now collect tax from out-of-state sellers and brick-and-mortar retailers, subjecting the latter to the same tax burdens as their online competitors.  Wayfair, however, does not hold that all tax regimes will pass constitutional muster.  To the contrary, it holds that such regimes will be subject to traditional Dormant Commerce Clause doctrines designed to prevent undue burdens on interstate commerce.

Background

Wayfair's issue was one the Court had decided twice before.  In Bellas Hess, the Court held that states could not impose sales tax collection obligations on out-of-state sellers who relied solely on the mail and common carriers to deliver their goods because the sellers “lacked the requisite minimum contacts with the State required by both the Due Process Clause and the Commerce Clause.”  In Quill, the Court overruled Bellas Hess’s due process holding, but reaffirmed Bellas Hess’s holding that the Dormant Commerce Clause forbids the imposition of sales tax collection obligations on sellers lacking an in-state physical presence.  In a concurring opinion, Justice Scalia, joined by Justices Kennedy and Thomas, emphasized that his vote was based solely on stare decisis.

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Supreme Court Issues Important Jurisdictional Ruling in Plavix Case

646545By Meenakshi Krishnan

On Monday, June 19, the Supreme Court held 8-1 in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County that California courts lacked specific jurisdiction to entertain claims brought by plaintiffs who were not California residents, as there was an insufficient connection between the forum and the specific claims at issue. 

In Bristol-Myers Squibb Co., a group of plaintiffs—86 California residents and 592 residents from other states—filed several state law claims in California Superior Court, alleging health damage caused by Plavix, a drug manufactured and sold by Bristol-Myers. The nonresident plaintiffs did not claim that they procured Plavix through any California source, nor did they claim they were injured or treated for their injuries in California. Bristol-Myers did not develop, market, manufacture, or otherwise work on Plavix in California, though the drug was sold in the state. Bristol-Myers asserted lack of personal jurisdiction, and after the Supreme Court’s decision in Daimler AG v. Bauman, the California Court of Appeal held that California courts had specific jurisdiction over the nonresidents’ claims. The California Supreme Court affirmed, applying a “sliding scale approach to specific jurisdiction.” Under that approach, “the more wide ranging the defendant’s forum contacts, the more readily is shown a connection between the forum contacts and the claim.” The Supreme Court granted certiorari to decide whether the California courts’ exercise of jurisdiction in this case violated the Due Process Clause and subsequently reversed and remanded.

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Supreme Court Holds That Voluntary Dismissal Does Not Permit Appellate Review of Class Certification Orders

Us-supreme-court-building-2225765_1920By Alexander M. Smith

This morning, the Supreme Court held 8-0 in Microsoft Corp. v. Baker that the named plaintiffs in a class action cannot appeal a denial of class certification (or the granting of a motion to strike class allegations) by voluntarily dismissing their claims.  A five-Justice majority held that this tactic was barred because a voluntary dismissal under these circumstances does not constitute a “final order” under 28 U.S.C. § 1291, while three Justices concurred in the judgment on the basis that such a voluntary dismissal extinguishes the adversity necessary to give rise to Article III standing.  (The Consumer Law Roundup has covered Baker in three previous posts.) 

In Baker, the plaintiffs had filed a putative class action against Microsoft alleging that a defect in the Xbox 360 resulted in scratched discs.  After the district court granted Microsoft’s motion to strike the plaintiffs’ class allegations, the named plaintiffs voluntarily dismissed their claims against Microsoft so that there would be a “final decision” from which they could appeal the denial of class certification.  The Ninth Circuit held, inter alia, that a stipulated dismissal of an individual claim is an adverse and appealable final judgment.  The Supreme Court granted certiorari to address this jurisdictional issue and subsequently reversed.

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Class Action Goes “To The Dogs” When Plaintiff Fails to Sufficiently Allege Damages from “Made in the USA” Claim

By Reena R. Bajowala

Dog-foodA federal court in Chicago recently dismissed a lawsuit brought by Dale Sabo, an Illinois resident seeking to represent a multi-state class of consumers who bought defendant Wellpet LLC’s pet food products. Sabo alleged that the products were falsely labeled “Made in the USA,” but instead contain vitamins and minerals sourced from outside the United States in violation of Illinois, California, New York and six other state consumer fraud statutes.  Sabo alleged that he places a premium on American-made products and is willing to pay more for them.  In addition, he claims that a majority of Americans feel the same way, particularly given recent reports of recalls linked to foreign-sourced ingredients. 

To prevail on a consumer fraud claim, though, a plaintiff must plead actual damages, i.e., actual pecuniary loss.  The court found that plaintiff failed to do so. While Sabo alleged that he “paid more for the products than they were actually worth,” the court held that he failed to provide the factual foundation “to moor his subjective estimation of the products’ worth.”  Neither did he allege that products that lacked domestic-source designations were less expensive.  As a result, “while he alleges that he (and other consumers) are willing to pay a premium for goods made in the United States, he stops short of alleging that he in fact paid more for defendant’s . . . American-made” products.  Because the damages allegation was too speculative, the Court dismissed the lawsuit.

Sabo v. Wellpet, LLC, 2017 WL 1427057, ___ F. Supp. 3d ___ (N.D. Ill. Apr. 4, 2017). 


Supreme Court Determines that New York Law Governing Credit Card Surcharges Regulates Speech

Pexels-photoBy Leonard R. Powell

On March 29, 2017, the United States Supreme Court held that a New York law prohibiting sellers from “impos[ing] a surcharge on a holder who elects to use a credit card” was a regulation of speech—not conduct—but the Court remanded the case to the Second Circuit to determine whether the speech regulation survives First Amendment scrutiny.

Regulation of credit card “surcharges” and cash “discounts” dates back to the 1970s and 1980s. In 1974, Congress amended the Truth in Lending Act (TILA) to, inter alia, “prohibit[] card issuers from contractually preventing merchants from giving discounts to customers who paid in cash.” In 1976, Congress further added to TILA a ban on card surcharges. However, the existence of opposing bans demanded a method for distinguishing between them. By 1981, Congress had defined “discount” as “a reduction made from the regular price,” “surcharge” as “any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means,” and “regular price” as (1) the “tagged or posted” price when only a single price is posted, or (2) the price charged to card users when either no price is posted or two prices (both a cash price and a credit card price) are posted. Despite the complicated nature of this statutory framework, the bottom line was simple: “a merchant could violate the surcharge ban only by posting a single price and charging credit card users more than that posted price.”

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