Consumer Crossroads: Where Financial Services and Litigation Intersect

Early in October, the Supreme Court heard oral arguments in Consumer Financial Protection Bureau v. Community Financial Services Association of America Ltd (CFPB v. CFSA). The appeal stems from a 2021 Western District of Texas ruling upholding the Payday Lending rule and the CFPB's funding structure, which the Fifth Circuit Court of Appeals later partially reversed. The Fifth Circuit held the CFPB's entire funding structure unconstitutional because "Congress's cession of its power of the purse to the Bureau violates the Appropriations Clause and the Constitution's underlying structural separation of powers[,]" and thereby vacated the Pay Day Lending Rule.

We previously reported on the U.S. Supreme Court’s decision, Tyler v. Hennepin County, where the court concluded that the State of Minnesota violated a property owner’s constitutional rights by keeping the excess sale proceeds from a tax lien sale. Following Tyler v. Hennepin County, the Sixth Circuit, in Freed v. Thomas, affirmed a lower court’s holding that a Michigan county similarly violated the Fifth Amendment's Takings Clause. Freed owed the County roughly $1,100 in property taxes. The County foreclosed its tax lien and sold Freed’s property at public auction for $42,000 in accordance with Michigan’s General Property Tax Act. The County refused to pay Freed the roughly $40,000 over and above his tax debt. Freed sued the County, claiming that retaining the excess proceeds was an unconstitutional taking in violation of the Fifth Amendment and an excessive fine in violation of the Eighth Amendment.

In Tyler v. Hennepin County, a unanimous U.S. Supreme Court concluded that the State of Minnesota violated a property owner's constitutional rights by keeping the excess proceeds from a tax lien sale. Geraldine Tyler owned a condominium in Hennepin County, Minnesota, but when she and her family decided she should move into a senior community in 2010, property taxes went unpaid. By 2015, Tyler owed the county $2,300 in unpaid taxes and $13,000 in accumulated interest and penalties. The county then seized and sold the condo for $40,000, extinguished the debt Tyler owed but retained all excess proceeds totaling $25,000 for its own use. Under Minnesota law, any excess tax sale proceeds could be split between the county, the town, and the school district.

On March 23, 2023, the Court of Appeals for the Second Circuit issued a decision in CFPB v. Law Offices of Crystal Moroney (Moroney). The case reviewed constitutional challenges to the Consumer Financial Protection Bureau's (CFPB) funding structure previously decided by the Fifth Circuit Court of Appeals last October in Community Financial Services Association of America, Ltd. v. CFPB (Community Financial). In Community Financial, the Fifth Circuit vacated the CFPB's 2017 "Payday Lending Rule" on the grounds that it was invalid "as the product of the Bureau's unconstitutional funding scheme." The CFPB's petition for writ of certiorari was granted by the U.S. Supreme Court in February.

On February 28th, 2023, the United States Supreme Court heard oral arguments in two related cases, Biden v. Nebraska and Department of Education v. Brown, both of which challenge President Biden's one-time student loan forgiveness program.

Today, Hunstein took another unique—but favorable—turn for the debt collection industry. The Eleventh Circuit Court of appeals issued an order vacating its last opinion in Hunstein vs. Preferred Collection & Management Services, Inc, and ordered the case to be reheard en banc.

In a special edition of our Consumer Law Hinsights newsletter, we cover the U.S. Supreme Court decision in TransUnion LLC v. Ramirez that was announced last Friday. The Court held "no concrete harm, no standing" in a significant check on federal consumer class actions. Read our analysis.

We analyze in this client advisory the recent decision by a unanimous U.S. Supreme Court to narrow the definition of what constitutes an automatic telephone dialing system, or autodialer. Our analysis includes a take on the potential impacts of the decision, as well as the significance of a Democratic Party-controlled FCC. We note that the TCPA has not gone away and callers should continue to carefully consider how best to comply with its provisions to avoid further litigation and regulatory risk.

With a major U.S. Supreme Court decision leading the way, recent developments continue to reshape the landscape of the Telephone Consumer Protection Act (TCPA).

The Federal Communications Commission (FCC) recently issued a Declaratory Ruling clarifying the definition of an autodialer. Exactly what constitutes an autodialer under the TCPA has been a burgeoning topic in consumer litigation. The TCPA prohibits any person from texting or calling a cellular telephone number using an automatic dialing system (“autodialer” or “ATDS”) without prior express consent. The TCPA defines an ATDS as equipment which has the capacity to (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.

Earlier today, the United States Supreme Court issued a two part decision in Seila Law LLC v. Consumer Financial Protection Bureau. The Court first decided, in a 5-4 decision with Chief Justice Roberts authoring the Court's opinion, that the CFPB's leadership by a single Director removable only for inefficiency, neglect, or malfeasance violates the separation of powers doctrine. The Court next decided that the Director's unconstitutional removal protection is severable from the other provisions of Dodd-Frank that establish the CFPB and define its authority. The severability holding was also authored by Roberts, but drew a 7-2 split.

The Third Circuit Court of Appeals issued an en banc decision in Riccio v. Sentry Credit, overturning Graziano v. Harrison, after finding that there is no written dispute requirement in Section 1692g(a)(3) of the Fair Debt Collection Practices Act (FDCPA). According to the court, this decision ends "a circuit split and restores national uniformity to the meaning of §1692g." Moreover, the decision applies retroactively to any claim still open on the issue, thus closing the chapter on a written requirement for Section 1692g.

Earlier this year, this blog reported on the Supreme Court's grant of certiorari in Rotkiske v. Klemm to resolve a split in circuits on the Fair Debt Collection Practices Act's (FDCPA) statute of limitations. This week, in an 8:1 opinion delivered by Justice Thomas, the Court concluded that the one-year statute of limitations in the FDCPA begins to run when the violation occurs, not when the violation is discovered. In doing so, they overturned rulings by the Fourth and Ninth Circuit, which had held the FDCPA's statute of limitations was subject to equitable tolling.

In Taggart v. Lorenzen, the U.S. Supreme Court reviewed the 9th Circuit Court of Appeals' Order, which affirmed the Bankruptcy Appellate Panel's Order vacating civil contempt sanctions against Bradley Taggart's ("Bradley") creditors for violation of a Bankruptcy Court discharge Order. On certiorari to the Court, the central issue was to determine "what the appropriate criteria should be for a Court to hold a creditor in civil contempt for attempting to collect a debt that a discharge order has immunized from collection." And, SCOTUS adopted an objective standard, which creditors should be mindful of going forward.

TCPA litigators have been closely monitoring the U.S. Supreme Court's docket waiting for a ruling in the PDR Network case. At stake is what kind of judicial deference should be given to the FCC's interpretation of the Telephone Consumer Protection Act (TCPA). Specifically, the Court was set to decide whether the Hobbs Act required the District Court to accept the FCC's legal interpretation of the TCPA. Numerous decisions at both the District Court and Circuit levels have held that trial courts have no discretion to review an FCC order interpreting the TCPA, meaning that courts must provide these orders complete deference.

Yesterday, the United States Supreme Court heard oral argument on appeal from the Fourth Circuit's decision issued in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc. The issue is whether a district court must accept the Federal Communication Commission's (FCC) rule interpreting an "unsolicited advertisement" under the Telephone Consumer Protection Act (TCPA). The district court held that PDR Network, LLC did not violate the TCPA when it faxed an unsolicited advertisement to Carlton & Harris Chiropractic for a free Physicians' Desk Reference. In doing so, the district court declined to apply the FCC's 2006 rule that interpreted an unsolicited advertisement under the TCPA to include fax messages that promote goods or services at no cost. On appeal, however, the Fourth Circuit reversed concluding that the district court should have applied the FCC's rule because the Hobbs Act, which establishes judicial review for final orders of certain federal agencies, requires a party to first challenge an agency rule with the respective agency before challenging the rule in court. The Supreme Court is left to decide whether the district court has authority to hear PDR's challenge to the FCC's rule in its defense of this TCPA lawsuit without any prior agency challenge.

Less than three months after hearing oral arguments in Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307, the United States Supreme Court held, in a 9-0 decision, that a business engaged in nonjudicial foreclosure proceedings is not a "debt collector" under the Fair Debt Collection Practices Act (FDCPA, "the Act"), except for the limited prohibitions set forth in 1692(f)(6). The decision provides helpful guidance to law firms and loan servicers who pursue nonjudicial foreclosures.

For mortgage servicers and foreclosure firms, yesterday's oral argument before the Supreme Court in Obduskey v. McCarthy & Holthus LLP, U.S. Supreme Court, 17-1307 and the upcoming decision, could be a game changer. At issue: a split in the federal circuits over whether the non-judicial foreclosure of a mortgage constitutes debt collection, as defined by the Fair Debt Collection Practices Act.