In this episode of Consumer Finance Compass, Balch’s Jason Tompkins, partner in Balch & Bingham’s Consumer Finance Compliance & Defense Practice, explores the Seventh Circuit’s new decision ruling that the disclosure of personal information to a vendor is not an injury, discussing the issue of standing in this case. As he navigates the Nabozny v. Optio Solutions LLC decision, Jason offers three best practices for businesses to consider moving forward.

Debt collectors and other companies use third party vendors for a wide variety of activities. This case underscores that while plaintiffs may argue those practices violate the terms of the Fair Debt Collection Practices Act (FDCPA), it doesn’t necessarily lead to a federal lawsuit or liability for doing so.

CONSUMER FINANCE COMPASS

Hosted by Balch & Bingham’s Jason Tompkins and Jonathan Hoffmann, Consumer Finance Compass is a video series navigating the latest issues in the complex regulatory sphere that is consumer finance. Jason and Jonathan are partners in the firm’s Birmingham office and members of the Consumer Finance Compliance & Defense Practice.

VIDEO TRANSCRIPT

Welcome to Balch's Consumer Finance Compass, where we'll navigate the complex regulatory sphere that is consumer finance. My name is Jason Tompkins, and I'm a member of the Consumer Finance Compliance and Defense Practice. Today, we'll explore Nabozny v. Optio Solutions LLC, a recent decision from the Seven Circuit Court of Appeals.

In Nabozny, the issue was one of standing. You may recall that standing is a necessary ingredient to bring a case in federal court, and one requirement of standing is that the plaintiff suffer an injury. The decision from the Seventh Circuit that we're discussing today, a debt collector used a vendor to populate, print, and mail a letter to the debtor, the plaintiff here, Mrs. Nabozny. She claimed that by disclosing her information to that letter vendor, that the debt collector had violated the Fair Debt Collection Practices Act, which generally prohibits, subject to certain exceptions that don't apply here, the disclosure of personal information about a debt to any third party.

The lower courts have reached differing decisions about whether this is enough to be an injury for purposes of federal court standing. But the Seventh Circuit becomes the third court of appeals, after the Eleventh and the Tenth, to hold that it is not enough for standing. The premise that underlies all these appellate decisions is that Congress cannot simply enact an injury into existence. In other words, violation of the statute is not in and of itself an injury, there must be some consequence. When that consequence is monetary or physical harm, standing is easy, but when the consequence is more intangible, the question becomes a little bit more complex. In that situation, the injury has to bear some close relationship to a traditional harm that's been recognized by American courts. Nabozny argued here that that common law principle was one of invasion of privacy.

Now, invasion of privacy actually has four different variations, the first is intrusion upon seclusion. You may remember from our first episode about Muccio, that's what the court analogize an unwanted text message to. The second form is appropriation of name or likeness, the third is publicity of one's private life, and the final is publicity that places one in a false light. The third one, which is commonly called public disclosure of private facts, is the one that was potentially relevant to the Seven Circuits decision. But in looking at what American courts have done with that particular common law tort, the court of appeals concluded that publicity requires disclosure to the public at large, or to a subset of people where it's likely to become public. So, either a great number of people, so it's likely to become more public, or a particular type of person, such as a journalist, who may then write an article about that situation.

The court concluded here that a letter vendor was entirely different. A communication to a single intermediary vendor, who the debt collector was using for the purpose of sending a letter, not to anyone in the public, but to the debtor herself, was not the same as public dissemination of private facts. Debt collectors and other companies use vendors for a wide variety of activities. And this case is a good reminder that while plaintiffs may argue that those business practices could violate the terms of the statute, it doesn't necessarily lead to a federal lawsuit, or to liability for doing so.

So let's keep in mind these tips when faced with litigation under consumer finance statutes. The first is, don't stop asking questions just because a violation occurred. You must ask that second question. Did an injury occur? Because a violation in of itself may not be enough. The second step is to look at the specific type of harm alleged. Does it bear some resemblance to a traditional injury that courts in America would address? And the final point is to reevaluate standing throughout the life of the case.

In Nabozny, the challenge was a facial challenge. The defendant argued that Nabozny's complaint did not even allege enough of an injury to the federal courts jurisdiction. But there are also factual challenges that may arise based on discovery in the case. You may learn that there was no physical or monetary damage, instead, the plaintiff is only claiming intangible harm, in which case you must undergo this analysis of a common law analog. And standing is something that cannot be waived, and does not have to be preserved, and can be raised on appeal for the first time.