Companies in the financial services industry are being targeted in lawsuits brought under the Telephone Consumer Protection Act (TCPA). Record-setting class action settlements like the recent $75 million settlement involving Capital One have captured the headlines. Moreover, unsettled law concerning the scope of consent creates uncertainty and places a compliance burden on financial services companies that communicate with their customers by phone or text using an automated telephone dialing system. This Legal Alert provides an overview of recent TCPA cases against financial services companies, analyzes the critical issue of consent, and discusses strategies to avoid TCPA class actions.
Enacted in 1991 to protect consumers from receiving unsolicited telemarketing calls and faxes, the TCPA regulates and restricts the manner in which a business may advertise its products and services to consumers’ cell phones (including via text), residential phone lines, and fax machines. Among other things, the TCPA prohibits the use of an “automated telephone dialing system” or an “artificial or prerecorded voice” to make calls to cell phones without the prior express consent of the called party. This rule applies to both telemarketing calls and non-telemarketing calls, including debt collection or informational calls. Following a change in TCPA regulations that took effect in October 2013, written consent is now required for most automated telemarketing communications.
Of particular significance for companies in the financial services industry, in 2008 the Federal Communications Commission (FCC) found that in the context of a creditor-debtor relationship, a customer is deemed to have provided prior express consent for collection calls when the consumer provided the creditor with his or her number “during the transaction that resulted in the debt owed.”1 The 2008 FCC Ruling explained that “the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt.” Creditors bear the burden of proving that such consent was obtained.
Despite the FCC’s ruling, the U.S. Court of Appeals for the Second Circuit, in Nigro v. Mercantile Adjustment Bureau, LLC, No. 13-1363 (October 14, 2014), recently noted that the timing of receipt of the consent could be important, and this question has not been expressly resolved. Nigro, No. 13-1363, at 7, n.4 (“Whether a subsequently given phone number is given as part of a continuing ‘transaction,’ or a transaction separate from the initial one that ‘resulted in the debt owed,’ is a question for future courts.”). Consequently, in some cases, the uncertainty over whether valid consent has been obtained has created TCPA risk for financial services companies. Because the TCPA provides for statutory damages of $500 per violation (and up to $1,500 per willful violation) with no maximum cap on recovery, potential exposure in a TCPA class action can quickly escalate.
Issues regarding the ambiguity surrounding the validity of consent factored prominently in the then record $24 million settlement in Arthur et al. v. SallieMae et al., No. 10-cv-00198 (W.D. Wa. 2012). The same issues and questions regarding consent have played out more recently in Wilkins v. HSBC Bank Nevada, N.A., No. 14-cv-190 (N.D. Ill., settlement preliminarily approved July 25, 2014) and in In Re: Capital One TCPA Litigation, No. 1:12-cv-10064 (N.D. Ill., settlement preliminarily approved July 29, 2014). Together, the combined settlements in these cases exceeded $115 million.
In SallieMae, plaintiffs sued SLM Corp., the parent company of Sallie Mae Inc., alleging that it violated the TCPA when, to aid its collection efforts, it called or texted approximately eight million student loan borrowers’ cellular telephones using an automated telephone dialing system. Plaintiffs alleged that some of these borrowers (including the named plaintiff) did not provide defendants with their cell phone numbers when the loans were initiated and, therefore, did not give their consent to receive the calls. Defendants took the position that while consent may not have been obtained at the outset of the parties’ relationship; it was subsequently and validly obtained. Despite their defense based on the 2008 FCC Ruling, and facing substantial potential exposure under the TCPA, in September 2012 defendants agreed to a $24.15 million nationwide class action settlement as well as injunctive relief restricting future calls to class members.
More recently, in HSBC, plaintiffs filed a class action alleging that the defendant-bank violated the TCPA by placing unsolicited calls to cell phones using an automated telephone dialing system or by prerecorded voice without first obtaining the proper consent. The named plaintiffs, both credit card customers of the defendant, alleged that they repeatedly received calls from the defendant on their cell phones, despite never having provided the numbers, or consent. The defendant denied the allegations, arguing that in the context of a debtor-creditor relationship consent could be obtained at any time. Plaintiffs asserted that consent could only be provided validly at the relationship’s inception. Despite the defendant’s arguments, in June 2014 the parties agreed to a nearly $40 million class action settlement, pending the court’s approval.
In July 2014, the highest TCPA settlement to date was reached in In Re: Capital One TCPA Litigation, a case which again showcases the consent issue and serves as a clarion call to others in the financial services industry who communicates with their customers by cell phone or text. Rather than continue to oppose the plaintiffs’ arguments on consent, defendants opted to settle for approximately $75 million. The motion for preliminary approval indicates that the estimated settlement class includes individuals throughout the United States who possess 21.2 million unique cellular phone numbers. The settlement reflects the heavy statutory penalties potentially available under the TCPA, the absence of a cap on statutory damages, the burden placed on creditors to prove that they received timely consent, and the FCC’s lack of clear guidance governing creditor consent.
For companies in the financial services sector, one possible line of defense against TCPA class actions may be found in arbitration agreements extant in many consumer contracts. Courts have enforced individual arbitration provisions with class action waivers in TCPA cases, barring plaintiffs from bringing or participating in class actions.
In Cayanan v. Citi Holdings, Inc., 928 F. Supp. 2d 1182 (S.D. Cal. 2012), borrowers filed a putative class action, alleging that the defendant violated the TCPA by placing debt collection calls. The defendant moved to compel arbitration pursuant to an arbitration clause in customer agreements signed by each plaintiff. Plaintiffs argued against enforcement of the arbitration agreement on the grounds that without a class action remedy they would be unable to fully vindicate their statutory rights under the TCPA. The court analyzed each arbitration agreement under the law of each plaintiff’s domicile, and upheld the validity of the respective arbitration agreements. Further, the district court found that the plaintiffs failed to explain how the arbitration agreements prevented them from vindicating their rights under the TCPA. The court also noted that the arbitration agreements did not limit the type or amount of recovery under the TCPA.
Another case highlights the nexus that must exist between the subject of the allegedly unlawful communication and the underlying contract or agreement between the parties necessary to enforce an arbitration agreement and class action waiver. In Delgado v. Progress Financial Co., No. 1:14-cv-00033 (E.D. Cal.), the plaintiff entered into a loan agreement that had an arbitration clause. The plaintiff argued that the arbitration clause was unenforceable because the calls he received fell “outside the scope of the arbitration agreement.” The arbitration agreement required that “any and all claims, controversies, or disputes arising out of or related in any way” to the loan agreement must be arbitrated. The court rejected the plaintiff’s argument that the collection calls were not related to the loan agreement, and enforced the arbitration agreement and class action waiver.
Recent high-dollar settlements by companies in the financial services industry, combined with the lack of clear guidance from the FCC on the consent issue, among others, continue to drive a trend of new TCPA filings. Financial services companies engaging in automated communications with consumers will need to be increasingly focused on TCPA compliance to mitigate their potential litigation risk.
1 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 23 FCC Rcd. 559, 564-65 (2008).
