Mortgage Banking Update - September 27, 2018
A unanimous three-judge panel of the U.S. Court of Appeals for the Ninth Circuit on Thursday handed the plaintiffs' bar a resounding win. The panel held that the Telephone Consumer Protection Act's (TCPA statutory definition of an automatic telephone dialing system (ATDS) includes telephone equipment that can automatically dial phone numbers stored in a list, rather than just phone numbers that the equipment randomly or sequentially generates. See Marks v. Crunch San Diego. This decision departs sharply from the post-ACA International decisions by the U.S. Courts of Appeals for the Second and Third Circuits, which had narrowed the definition of an ATDS.
In Marks¸ the plaintiff sued Crunch Fitness after he received three text messages from the gym sent through its Textmunication system. The district court had granted summary judgment to Crunch Fitness after finding that the Textmunication system could not be an ATDS because it lacked a random or sequential number generator and required human intervention to input the numbers into the platform. The plaintiff, a representative of a putative class, appealed. While the appeal was pending, the U.S. Court of Appeals for the District of Columbia Circuit issued its decision in ACA International. (Prior alert here).
The Ninth Circuit agreed with earlier cases interpreting the D.C. Circuit's opinion in ACA International to have overruled all prior FCC guidance on the definition of an ATDS and held that "only the statutory definition of ATDS as set forth by Congress in 1991 remains." Based upon the remaining statutory definition, the court considered two questions: (1) "whether, in order to be an ATDS, a device must dial numbers generated by a random or sequential number generator or if a device can be an ATDS if it merely dials numbers from a stored list;" and (2) "to what extent the device must function without human intervention in order to qualify as an ATDS."
As to the first question, the Ninth Circuit concluded that the statutory definition of an ATDS was "ambiguous on its face." It thus examined the "context and structure of the statutory scheme" to conclude that Congress intended to regulate devices that make automatic calls, including automatic calls dialed from lists of recipients. As support, the Ninth Circuit pointed to other TCPA provisions that allowed an ATDS to call selected numbers, reasoning that a device would have to dial from a list of phone numbers to take advantage of such provisions. The court also noted that Congress amended the TCPA in 2015 but left the definition of an ATDS untouched, even after the FCC had interpreted the definition to include devices that could dial numbers from a stored list. Accordingly, the Ninth Circuit held that an ATDS refers to equipment that "has the capacity—(1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers."
As to the second question, the Ninth Circuit rejected the argument that a device must operate without any human intervention whatsoever. It explained that the definition's reference to an "automatic telephone dialing system" meant that Congress was targeting equipment that automatically dialed phone numbers, not equipment that operated without any human involvement. Thus, a device that automatically dials from a list that is loaded into the dialing device may qualify as an ATDS even though humans were used to input the phone numbers into the device.
Based on its interpretation of the definition of an ATDS, the Ninth Circuit held that the evidence in Marks (specifically, evidence that the equipment at issue stored and dialed numbers automatically to send text messages as part of a campaign) created a genuine issue of material fact sufficient to withstand summary judgment. It therefore declined to address the question of whether dialing equipment must have the current or potential capacity to perform the required ATDS functions.
The Marks court's ruling creates a circuit split in view of the Third Circuit's decision in Dominguez, which the Ninth Circuit criticized as "unpersuasive." It remains to be seen whether Crunch Fitness will seek certiorari in the U.S. Supreme Court. Also unknown is whether the FCC's pending public notice proceeding—from which further guidance on the ATDS definition is anticipated—will clash with the Marks ruling.
While companies had hoped the decision would slow the flood of TCPA litigation by narrowing the definition of an ATDS, the Marks decision instead makes the Ninth Circuit a magnet for these cases by retaining essentially the same broad definition in effect before the ACA International decision. The good news is that the case creates a clear circuit split that hopefully will result in the Supreme Court deciding the issue once and for all. In the meantime, strong TCPA compliance procedures, as well as contractual consent and arbitration provisions, remain important tools for avoiding potential TCPA exposure.
Ballard Spahr's TCPA Task Force assists clients in navigating the complex and challenging issues that arise under the TCPA. The Task Force, which comprises regulatory attorneys and litigators, defends clients against TCPA class and individual actions, and counsels on TCPA compliance and avoiding liability, including reviewing policies and practices and helping to design text message, prerecorded, and autodialed-call campaigns. It also assists clients in commenting on regulatory proposals and handling scrutiny from regulators, including preparing for examinations, responding to investigations, and defending against enforcement actions.
On this week's podcast, Ballard Spahr attorneys Bo Ranney, Chris Willis, and Reid Herlihy discuss the significant takeaways from the new report from the CFPB (Consumer Financial Protection Bureau)—the first edition of Supervisory Highlights issued under Acting Director Mick Mulvaney. Mr. Ranney, former Examiner-in-Charge at the CFPB, and Mr. Willis, who chairs Ballard Spahr's Consumer Financial Services Litigation Group, discuss the CFPB's findings regarding debt collection, payday loans, automobile servicing, and small business lending. They also identify potential areas where the CFPB might focus in future examinations and offer recommendations for addressing the operational concerns raised by the report. Mr. Herlihy, a partner in Ballard Spahr's Mortgage Banking Group, discusses the high-priority, mortgage-related topics identified in the report, lessons the mortgage industry can learn from the Bureau's findings, and how the CFPB's approach in this new report differs from its approach under prior leadership.- Alan S. Kaplinsky
Noting, among other things, "retrenchment" on the federal level, the Maryland Financial Consumer Protection Act of 2018 (HB 1634) was signed into law on May 15, 2018.
The Act's provisions take effect on October 1, 2018, and include the following:
- Maryland Consumer Protection Act (MCPA):Adds "abusive" practices to the existing proscription against "unfair and deceptive trade practices" and adds violations of the federal Military Lending Act and the federal Servicemembers Civil Relief Act to the list of statutes that are considered to be per se violations of the UDAAP (unfair, deceptive, or abusive acts or practices) proscription. Increases the maximum civil penalties for violations of the MCPA by merchants to $10,000 for a first violation and $25,000 for a repeat violation.
- Increases in civil penalty amounts. The law increases permissive civil penalty amounts for violations of laws, regulations, rules or orders over which the Commissioner of Financial Regulation has jurisdiction to a maximum of $10,000 for a first violation and a maximum of $25,000 for each subsequent violation. Similar amendments were made throughout the statutes governing activity within the jurisdiction of the Commissioner; in some instances (e.g., collection agency, mortgage lending, mortgage loan originators, money transmission, debt management services), the amendments increase the maximum civil penalties that may be imposed when a violator fails to cease and desist or take affirmation action to correct the violation required by an order.
- Requires the Office of the Attorney General and the Commissioner of Financial Regulation, whenever considered appropriate, to use their authority under Section 1042 of the Dodd-Frank Act to bring civil actions or other appropriate proceedings and requires appropriation of at least $1,000,000 in general funds (at least $700,000 for the Attorney General, and at least $300,000 for the Commissioner) for purposes of enforcing consumer protection laws.
- Changes relating to collection activity. The law changes the definition of a "licensed collection agency" in the Maryland Collection Agency Licensing Act from a person who is licensed to a person who is required to be licensed, regardless of whether the person is actually licensed, and also provides under the Maryland Debt Collection Act that it is a prohibited activity for a collector to engage in unlicensed debt collection in violation of the Maryland Collection Agency Licensing Act or to engage in any conduct in violation of Sections 804 to 812 of the federal Fair Debt Collection Practices Act (FDCPA). (Sections 804 to 812 of the FDCPA: impose requirements and restrictions on debt collectors when communicating with any person other than the consumer for the purpose of acquiring location information about the consumer; impose requirements and restrictions on debt collectors when communicating with the consumer or with third parties in connection with the collection of any debt; prohibit debt collectors from engaging in conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt; prohibit a debt collector from using false, deceptive, or misleading representations or means in connection with the collection of any debt; prohibit a debt collector from using unfair or unconscionable means to collect or attempt to collect any debt; and prohibit the design, compilation, and furnishing of any form knowing that such a form would be used to create the false belief in a consumer that a person other than the creditor is participating in the collection or attempted collection of a debt allegedly owed to such creditor when in fact such person is not so participating. The cited FDCPA provisions also govern: the timing and content of required written notices to consumers and the required conduct of a debt collector when a consumer notifies the debt collector that it disputes any portion of the debt or requests information regarding the original creditor; application of single payments where a consumer owes multiple debts and a debt has been disputed; and the venue for legal actions brought by debt collectors.
- Requires a Student Loan Ombudsman. The Ombudsman, in consultation with the Commissioner of Financial Regulation, must:
- receive and review complaints from student loan borrowers;
- attempt to resolve complaints;
- compile and analyze complaint data;
- disseminate information about student education loans and servicing by helping student loan borrowers understand their rights and responsibilities, providing information to the public, state agencies, elected officials, and others relating to borrower problems and concerns, and by providing information about the availability of the Ombudsman to borrowers and potential borrowers, state higher education institutions, and student loan servicers; and
- establish a student loan borrower education course on or before October 1, 2019.
The Ombudsman is also tasked with:
- analyzing and monitoring federal, state, and local laws, regulations, and policies on student loan borrowers and reporting its findings to the General Assembly;
- disclosing to the General Assembly the complaint data it compiles, noting trends in the data and identifying the names of student loan servicers engaging in any abusive, unfair, deceptive, or fraudulent practices; and
- making recommendations to the General Assembly regarding methods to resolve borrower issues/concerns and for any necessary changes to state law to ensure a fair, transparent, and equitable industry—including whether licensing or registration of student loan servicers should be required in Maryland.
The Commissioner is required to report annually on the implementation and effectiveness of the Ombudsman. The Ombudsman may refer any matter that is abusive, unfair, deceptive, or fraudulent to the Office of the Attorney General for civil enforcement or criminal prosecution.
- Requires "student loan servicers," as defined, to designate an individual to represent the servicer in communications with the Ombudsman and provide contact information to the Ombudsman.
- Requires the Office of the Commissioner of Financial Regulation to study Fintech regulation. The law requires the Office of the Commissioner of Financial Regulation to assess whether it possesses enough statutory authority to regulate "Fintech firms" or "technology-driven nonbank companies" that compete with companies engaged in the delivery of financial services using traditional methods, to identify gaps in the regulation of Fintech firms—including any specific types of companies that are not subject to regulation under Maryland law—and to report its findings and recommendations to the General Assembly by December 31, 2019.
- Requires the Maryland Financial Consumer Protection Commission to conduct various studies and include recommendations in its 2018 report to the Governor. The Commission's studies are to include: cryptocurrencies, initial coin offerings, cryptocurrency exchanges and other blockchain technologies; the Model State Consumer and Employee Justice Enforcement Act and similar laws adopted in other states; the possible exemption of retailers of manufactured homes from the definition of mortgage originator in federal law; and the U.S. Department of Labor rule and any SEC actions addressing conflicts of interest of broker-dealers offering investment advice by aligning the standard of care for broker-dealers with that of the fiduciary duty of investment advisors.
Did You Know?
Vermont Exempts Bank Partners from Loan Solicitation License for Commercial Loans
The Vermont Department of Financial Regulation (Department) has issued an order exempting loan solicitation companies from licensure when they partner with FDIC-insured banks to offer commercial loans. The order provides that a loan solicitation license is not required provided the following conditions are satisfied: 1) the loan solicitation company has partnered with an FDIC-insured bank; 2) the loan solicitation company is soliciting commercial loans; 3) the commercial loan is made by the FDIC-insured bank and the bank is clearly identified as the lender in the loan documents; 4) the loan solicitation company is subject to ongoing monitoring, training, and compliance programs by the FDIC-insured bank to manage the activities of the loan solicitation company; and 5) the loan solicitation company is subject to supervision, oversight, regulation, and examination by the FDIC-insured bank's state regulator (if any) and federal regulator.
Entities that wish to rely upon this exemption must, upon request, provide the Commissioner of the Department with evidence demonstrating that the company is subject to regulatory supervision (including examinations) by the bank's regulators in a manner that is at least equivalent to the supervision and examination of a loan solicitation company licensed by the Department. The order does not provide details on what level of supervision would be deemed "equivalent" to that imposed upon a licensee.
Copyright © 2018 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.