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Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.
Ill. State Court Judge Issues Ruling on Merits in Granting MJOP for Defendant in Hunstein Class Action
In a case that was defended by David Schultz and Justin Penn of Hinshaw & Culbertson, a state court judge in Illinois has granted a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act Hunstein class-action case, ruling that the communication between the defendants and their letter vendor were not an attempt to collect a debt and thus not within the purpose of the statute. Getting a ruling on the merits in this type of case has been exceedingly difficult for the ARM industry. More details here.
WHAT THIS MEANS, FROM LORAINE LYONS OF MARTIN LYONS WATTS MORGAN: The Defendants stood their ground, and another Hunstein copycat case bites the dust on a Motion for Judgment on the Pleadings! Defendants argued that even if all the allegations in Plaintiff’s pleadings are true, there is no legal basis for Plaintiff to prevail. Essentially, the Hunstein issue was decided in the Defendants’ favor as a matter of law.
The court homed in on the fact that consumer information provided by the Defendants to the mail vendor is not a communication in connection with the collection of a debt; there is no demand for payment when the consumer’s personal information is transmitted to a letter vendor. Further, the court applied common sense. The letter vendor has no relationship with the consumer. How does the Defendants’ communication with the letter vendor induce the consumer to pay his debt? Instead, the Defendants’ communications to the letter vendor were to provide necessary information for the vendor to print a letter on behalf of the Defendants.
Nice win!
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Judge Rules Plaintiff Has Standing in TCPA Case over Messages Left with Wrong Recipient
A Magistrate judge in Ohio has recommended that a Telephone Consumer Protection Act class-action not be dismissed because the plaintiff has standing to sue after a bank was accused of violating the statute by placing 13 calls and leaving artificial or prerecorded voice messages to the plaintiff’s cell phone for someone else. More details here.
WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: Challenges to standing and federal court jurisdiction can take two forms: (1) a facial attack, where the allegations in the complaint are assumed to be true, and (2) a factual attack, where the court examines evidence rather than simply accepting plaintiff’s allegations. Here, a defendant bank attempted to side-step a TCPA putative class action through an immediate facial challenge to standing based on the pleadings alone, emphasizing that it was obvious from the context that the calls were intended for someone other than the plaintiff herself, and there were only 13 call attempts made. But applying current standards in the Sixth and Seventh Circuits, where standing may exist even if the volume of calls is “too minor an annoyance to be actionable at common law,” and where even a single call make present sufficient concrete harm, the Magistrate Judge rejected the facial challenge, and issued a Report and Recommendation to allow the case to proceed. Perhaps defendant will be able to develop a stronger standing defense down the road, based on the plaintiff’s deposition testimony, but that of course will require the time and expense of conducting discovery.
Appeals Court Reverses Ruling in TCPA Class-Action, Holds Owner of Phone Need Not be Main User to Have Standing
The Court of Appeals for the Ninth Circuit on Friday reversed the dismissal of a Telephone Consumer Protection Act lawsuit that was tossed because the text messages in question were sent to a phone that the plaintiff had provided to her 13-year-old son, ruling that the mother did have standing to sue because she was the owner of the phone. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This case invokes the question: Should I challenge the issue of “standing” in every case just because I can?
In this case, the plaintiff place her cell phone number on the TCPA’s telemarketing National Do Not Call (“DNC”) list. She was the subscriber of the cell phone at issue. Plaintiff allowed her son to use her phone occasionally, and he signed up for certain text messages from Smash Dot’s website. Plaintiff then received five text messages to her cell phone from Smash Dot and she sued under the TCPA alleging Smash Dot violated the DNC rules.
The 9th Circuit here reversed the District Court’s decision that the plaintiff mother/subscriber of the cell phone had no “standing” to bring an action in federal court because she could not allege that she was the actual user of the cell phone for the purposes of the text messages at issue. In reversing, the 9th Circuit held that a person who is the subscriber of a cell phone and who places their phone on the DNC list has “standing” (i.e., has suffered an injury) to bring an action when their DNC rights are violated even if the communications are intended for or solicited by another individual, and even if someone else is using the phone at the time the messages are transmitted.
The 9th Circuit here is relying on several things: First, from prior 9th Circuit precedent, that One text message is sufficient to confer standing (i.e. harm/injury) when a person receives a cell phone call, message or text in violation of the TCPA. Second, since plaintiff is the subscriber, she has the right to assert violations of the TCPA even if someone else was using the cell phone at issue.
The problem is as follows: The above places an entity in a catch-22 situation – where is the fairness in allowing someone to bring a suit where they received text messages because they allowed someone else to use their phone who consented to receive certain text or other messages? That makes no sense. But, the 9th Circuit noted: Whether the plaintiff’s son solicited the messages, and whether his consent would be legally sufficient under the TCPA such that his mother loses her TCPA argument, are inquiries reserved for the “merits” for the case. NOTE: There is a difference between whether someone has “Standing” (the right) to bring a lawsuit vs. whether they can win that lawsuit based on the “merits” of the claims.
So – the plaintiff here may have won the initial “standing” battle, but may lose the war as the District Court could rule that the son’s consent gave Smash Dot the right to send text messages because he consented. Whether the minor son can legally consent is part of the battle. And, it was reasonable for the mother to foresee that by giving her son the right to use her phone without restrictions that he may sign up to receive texts message from a given platform. The plaintiff will seek to argue that her son is a minor and that he cannot “consent”.
Lesson Learned regarding challenges to Standing: Again, one must be careful in litigating the issue of standing in a given case. Just because you may be able to challenge standing, does not mean you should do so in every case. The decision to challenge “standing”, i.e., whether someone has suffered an injury sufficient to confer them the right to sue, must be carefully and strategically decided in every case.
Carry on!!!!
Appeals Court Upholds Reasonableness of Dispute Investigation in FCRA Case
The Court of Appeals for the Seventh Circuit has upheld summary judgment in favor of a furnisher in a Fair Credit Reporting Act case that was accused of providing inaccurate information after conducting an unreasonable investigation of the plaintiff’s dispute, ruling that “no reasonable jury could find” that the furnisher “provided patently incorrect or materially misleading information.” More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: In Frazier v Dovenmuehle, the 7th Circuit provides another favorable FCRA reasonable investigation ruling. Two prior strong 7th Circuit rulings are Walton v EOS and Westra v Credit Control. These are important rulings for furnishers defending FCRA cases.
The key part of the Frazier ruling is the standard the court adopted. The court stated that “incompleteness or inaccuracy under § 1681s-2(b) requires a showing that the information the data furnisher provided was (1) patently incorrect, or (2) materially misleading, including by omission. By materially misleading, we mean ‘misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.’” That is a good standard for the industry.
This is the third circuit court ruling in the past year that affirmed summary judgment in favor of the furnisher on a reasonable investigation claim – Bibbs v Trans Union from the 3rd Circuit and Milgram v Chase Bank from the 11th Circuit. The Frazier court acknowledged it was consistent with Bibbs. The court noted Bibbs “involves the accuracy of a credit report under 15 U.S.C. § 1681e(b), [but] given our adoption of the patently incorrect or materially misleading standard from § 1681e(b) caselaw, the analogy is tight.”
The tide of TCPA cases turned after the Facebook ruling. It also seems like there is a good trend in FCRA cases. Let’s hope so.
Appeals Court Grants En Banc Request in FDCPA Case
The Court of Appeals for the Ninth Circuit has granted an en banc rehearing request filed by a collector in a Fair Debt Collection Practices Act case, and will determine for itself whether the plaintiff had standing to file his lawsuit in the first place, rather than remanding the case back to the District Court to make that determination. More details here.
WHAT THIS MEANS, FROM KHARI FERRELL OF FROST ECHOLS: This case highlights an appellate court’s independent duty to ensure that it has jurisdiction. Initially, the United States Court of Appeals for the Ninth Circuit remanded this case, in order for the district court to determine whether the plaintiff had Article III standing.
In response to the remand, the defendant-appellee petitioned the court for panel rehearing, arguing that the Ninth Circuit’s duty to consider whether Article III standing exists is independent from that of the district court. In addition, the defendant-appellee took the position that remand was not appropriate because the plaintiff-appellant had a previous opportunity and obligation to “present specific facts” to the district court to support his standing, both at the pleading stage and at the summary judgment stage—yet failed to do so at either point.
Based on those arguments, the Ninth Circuit opted to grant the defendant-appellee’s petition for panel rehearing, and while it did find the plaintiff-appellant satisfied his burden to establish Article III standing, it ultimately affirmed the district court’s grant of summary judgment on the merits.
Senate Democrats Call on CFPB to Protect Consumers from AI-based Scams
A quartet of Senate Democrats are calling on the Consumer Financial Protection Bureau to “take action” and protect consumers from voice cloning technology that may be used to fraudulently access consumers’ finances and bank accounts. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: In yet another busy week, concerns are proliferating over the use and evolution of AI. SAG-AFTRA actors, aggrieved by the use of AI to replicate them (their likenesses and voices) without recompense, announced they will go on strike after labor negotiations fall apart. Meanwhile a handful of Senators urge the Consumer Financial Protection Bureau (CFPB) to take action “regarding the governance of artificial intelligence (AI) and machine learning in consumer financial products, especially as it relates to protecting consumers from fraud and scams.” Across the country on the West Coast, plaintiffs’ lawyers continue to file costly class actions under “CIPA” or California’s Invasion of Privacy Act, which lawsuits allege that even well-meaning companies (e.g., banks, insurance companies and other consumer-facing institutions) are “authenticating” consumers by deploying AI in voice authentication technology to ensure consumers’ security and privacy when consumers call in for help.
For decades financial institutions and insurance companies, vulnerable to illicit criminal activities, prevent fraud, corruption, money laundering and terrorist financing, by abiding by Know Your Customer or “KYC” standards. Much like the call openings that folks in the credit and collections industry design to assure they are speaking with the right party about consumer accounts, KYC is a standard for accurately identify clients/customers, performing due diligence on customers, monitoring activity and transactions, and keeping abreast of larger market risks that may affect an organization’s customers. The appeal of biometrics and voiceprinting seems obvious: storing and matching the unique characteristics of customers with incoming calls from as-yet unauthenticated persons saves time, is convenient, reduces the friction consumers experience when they log in or call in, and protects consumers’ privacy and the security of their assets/information. But as the aggrieved SAG-AFTRA actors and Senator Brown and others note – AI has allowed for very sophisticated replication of those unique likenesses, voice and other characteristics quickly and efficiently. All this makes one think about advertisements in the 1970’s by a company named Digital Products International, Inc. (DPI). DPI marketed its “Memorex” cassette recording tape touting it had such a high quality people would not know “is it live or is it Memorex”.
Where does this leave industry? A few practical suggestions companies may want to consider include the following:
- Know and apply (or borrow) the features of KYC when mapping your customer verification processes.
- Assure your cookie doors, published terms and conditions, acceptable use, or other privacy policies, and other disclosures are clear, conspicuous, and readily understandable 24/7 by consumers.
- If you plan to store voiceprints or other biometrics, assure you can do so in a secure manner and be mindful of the growing number of state laws (e.g., Illinois’ biometrics law, Washington’s my health/my data law, and California’s Invasion of Privacy Act) and their associated guardrails about storing individuals’ unique characteristics. Calibrate to and align with those requirements.
- When deploying AI strategies, continue to revisit and rebalance convenience, privacy, security and customer satisfaction – potentially considering customer acceptance or focus group exercises to right-size your approach.
I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.
