CFSL Bulletin : Consumer Finance Lawyers & Attorneys for Financial Litigation & Class Action Defense

In reviewing the state court’s grant of CCS’s general demurrer, the Ninth Circuit followed the precedent set by their decision in Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147 (9th Cir. 2009), in which they found that the FCRA did not preempt private consumer actions against furnishers under California Civil Code §1785.25(a). Despite this finding however, the Plaintiff’s claim failed as she did not defend her claim that CCS had provided inaccurate information in violation of §1785.25(a); choosing only to defend a claim that CCS failed to adequately complete an investigation in response to a reinvestigation inquiry. This latter allegation implicated a violation of California Civil Code §1785.25(f), causing the claim to fail as the Ninth Circuit found that section 1785.25(f) was not saved from preemption by the FRCA. The decision granting the general demurrer was therefore upheld.

Regarding the claims made under the CCRAA, the Ninth Circuit found that while California courts had not yet decided the issue of whether a plaintiff must demonstrate the inaccuracy of a disputed item in order to obtain relief for a violation, decisions interpreting the FCRA, which are deemed persuasive, have found such a requirement. Due to Plaintiff’s concession that all the information on her credit report was correct on its face, she was unable to establish a prima facie reinvestigation claim inaccuracy. In making its decision, the court noted that reinvestigation claims are not the proper vehicle for collaterally attacking the legal validity of consumer debts. A consumer seeking to dispute the legal validity of should seek to resolve the matter directly with the creditor or furnisher.
 

In Greenwood, the Ninth Circuit concluded that an arbitration provision included in the terms of a subprime credit card’s customer agreement was void because the CROA specifically prohibits provisions waiving a consumer’s right to sue in court for CROA violations. The plaintiffs in Greenwood were a class of consumers that accepted pre-approved, subprime credit cards marketed to consumers with low or weak credit scores with representations that the card could be used to “rebuild your credit,” “rebuild poor credit,” and “improve your credit rating.” Plaintiffs sued the credit provider, CompuCredit, alleging that the company violated the CROA by issuing them a credit card with a $300 limit and charging $257 in fees during the first year. CompuCredit moved to compel arbitration pursuant to the arbitration provision in the terms of the subprime credit card’s customer agreement. The district court denied CompuCredit’s motion concluding that the arbitration provision was void because the CROA guarantees the right to “sue” in court and does not allow provisions waiving that right. CompuCredit filed a timely interlocutory appeal with the Ninth Circuit challenging the denial of the motion to compel arbitration.

CompuCredit made several arguments to the Ninth Circuit including that: (1) placing the “right to sue” language in the mandatory “Disclosures” section of the CROA did not actually create a right to sue; (2) the “right to sue” language was shorthand for the more “complicated” rights embodied in Section 1679g of the CROA; and (3) the “right to sue” language was used because it is more “understandable” than a broader phrase such as the “right to bring a claim.” The Ninth Circuit rejected each of these arguments as (1) yielding an absurd result; (2) rendering parts of the statute superfluous; and (3) interpreting the CROA in a way that goes against its purpose, respectively.

The Ninth Circuit acknowledged that its decision conflicts with decisions from the Third and Eleventh Circuits but reasoned that those circuit courts had given “surprisingly little regard to the ‘right to sue’ language in the statute, and rely upon reasoning in Supreme Court cases that are distinguishable from the situation here.”

In one of the decisions that conflicts with Greenwood, Gay v.CreditInform, 511 F.3d 369 (3d Cir. 2007), the Third Circuit found that an arbitration provision in an agreement with a credit repair organization was enforceable and that the “right to sue” language in Section 1679c of the CROA “does not specify the forum for the resolution of the dispute and therefore does not support [plaintiff’s] argument that the CROA provides a consumer with the right to bring suit in a judicial, rather than a arbitral, forum for CROA violations.” The Third Circuit also analogized to several Supreme Court cases enforcing arbitration agreements in different statutory contexts.

The Ninth Circuit described the Third Circuit decision in Gay as dispatching with the “right to sue” language in a footnote and ignoring the CROA’s anti-waiver clause. The Ninth Circuit also noted that the Supreme Court cases relied on by the Third Circuit were “unavailing.” Moreover, the Ninth Circuit declined to discuss the Eleventh Circuit case, Picard v. Credit Solutions, Inc., 564 F.3d 1249 (11th Cir. 2009), in detail because it essentially followed and adopted the reasoning in Gay.

Circuit Judge Tashima issued a dissenting opinion in Greenwood. Judge Tashima noted that there was a “liberal federal policy favoring arbitration agreements” and that plaintiffs bore the burden of showing that Congress intended to preclude a waiver of a judicial forum for CROA claims. The dissenting opinion also stated that “[n]othing cited by Plaintiffs suggests that Congress actually considered the issue of arbitrability of CROA claims, and the legislative history does not establish that Congress intended CROA claims to be non-arbitrable.”

Given the disparate conclusions from circuit courts that have addressed the issue, Greenwood is certain to spur debate (and litigation) about the meaning of the word “sue” as used in the CROA.

In Rubio, the plaintiff alleged that Capital One violated the Truth in Lending Act (TILA) relating to a February 2004 direct-mail credit card solicitation. The solicitation listed the credit card’s APR for purchases in its “Schumer Box” (a table required by federal law) as a “fixed rate of 6.99%.”  An asterisk was included, linked to a paragraph printed just below the Schumer Box that stated:

All your Annual Percentage Rates (APRs) are subject to increase if any of the following conditions (“Conditions”) occur: (i) you fail to make a payment to us when due; (ii) your account is overlimit; (iii) or your payment is returned for any reason.

Further down on the same page, under the heading “Terms of Offer,” the solicitation provided, as part of the terms: “I will receive the Capital One Customer Agreement and am bound by its terms and future revisions thereof. My Agreement terms (for example, rates and fees) are subject to change.”

In 2007, Capital One increased the interest rate on the plaintiff’s card due to the rise in market interest rates, not because of her meeting any of the three enumerated Conditions. The Ninth Circuit held that “it is not ‘clear and conspicuous’ to describe an APR as ‘fixed’ when the creditor has reserved the right to change the APR for any reason.” The Court made this decision based upon empirical evidence from the very same consumer studies that motivated the new regulation quoted above.

In other words, the court determined that the use of the word “fixed” in a 2004 solicitation to describe an APR was deemed misleading based upon studies in 2006 and 2007, upon which a regulation not effective until 2010 was based. Yet, the Ninth Circuit emphasized that this did not make the new regulation retroactive, and stated:

What was misleading in 2006 and 2007, when the consumer studies were conducted, was also misleading in 2004, when Rubio received Capital One’s solicitation. The new regulation and the empirical studies it relies on are therefore relevant and informative for this case.  For even where not binding, an agency’s interpretation of a statute certainly may influence courts facing questions the agency has already answered. . . . TILA has always prohibited misleading APR disclosures. Our holding is simply a concrete application of that prohibition.

One judge on the three-judge panel dissented, pointing to a discussion in the Comments to Regulation Z showing that a fixed-rate account is one not tied to an index or formula as a part of the credit plan. The dissenting judge, therefore, deemed the use of the term “fixed” as accurate because the account did not involve pre-planned rate changes. Thus, the dissent explains, the real dispute should be the clarity of the disclosure, which is a question of fact that could be decided either way and; therefore, should not be decided by the court as a matter of law.

Whether you agree with the majority or the dissent, Rubio presents a cautionary tale of the danger of liability under TILA for prior disclosures despite the governing regulations at the time.

The appellant filed a class action lawsuit that asserted that the collections agency, which was trying to collect a debt owed by the appellant to a dental practice, violated the FDCPA by charging a usurious rate of interest and by violating the FDCPA’s prohibition against the use of false, deceptive, or misleading statements in connection with collecting a debt by “misrepresenting the amount of interest” that the appellant owed. The Eastern District of Washington ruled in favor of the collections agency on cross summary judgment motions, finding that the collections agency had not violated the FDCPA.

The two FDCPA provisions that were at issue in this case are 15 U.S.C. §§ 1692e and 1692f. Section 1692e(2) prohibits “[t]he false representation of…the character, amount or legal status of any debt.” Section 1692f prohibits a debt collector from using “unfair or unconscionable means to collect or attempt to collect any debt.” “The collection of any amount…unless such amount is expressly authorized by the agreement creating the debt or permitted by law” is a violation of § 1692f(1). Both sections are analyzed objectively. The relevant question in examining both sections of the FDCPA is whether “the least sophisticated debtor would likely be misled by a communication.” Guerreor v. RJM Acquisitions LLC, 449 F.3d 926, 934 (9th Cir. 2007) (internal quotation marks omitted).

The Ninth Circuit affirmed the lower court’s decision that the collections agency had not violated §§ 1692e and 1692f by charging more than 12% annual interest in contravention of Washington usury law. Washington law prohibits charging more than 12% annual interest “for the loan or forbearance of any money, goods, or things in action.” Wash. Rev. Code § 19.52.020. The Ninth Circuit found that the 90-day “grace period” in the original payment agreement between the appellant and her dental office was not a forbearance agreement.

The court relied on the Washington State Supreme Court’s definition of forbearance under Washington law, which defined it as “a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower to pay a loan or debt then due and payable.” Whitaker v. Spiegel Inc., 623 P.2d 1147, 1152 (Wash. 1981). Based on that definition, the Ninth Circuit determined that the dental office’s payment arrangement was not a forbearance because the dental office had no contractual obligation to “refrain, during a given period of time, from requiring [appellant] to pay a loan or debt then due and payable.” Id. (emphasis added). Instead, the payment was “due to be paid in full within ninety (90) days of service.” The dental office did not agree to forbear and, therefore, the court concluded that the collections agency did not charge usurious interest in either the complaint or demand letter.

The Ninth Circuit also concluded that the collections agency’s complaint against the appellant did not violate the FDCPA because it did not contain a false, deceptive, or misleading representation. The complaint stated that the Appellant owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed. It turned out that the $32.89 was actually made up of two components: $24.07 in pre-assignment finance charges assessed by the dental office and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%. The Court also noted that the complaint contained the correct principal owed and the total non-principal amount owed was also correct.