The Supreme Court continues to take a close look at major administrative law questions, and its answers have the potential to significantly affect the consumer finance industry. Most notably, in 2023, the Supreme Court heard oral argument in a case concerning the constitutionality of the CFPB’s funding mechanism and in two other cases questioning the continued vitality and scope of the Chevron doctrine, which could significantly affect agencies’ rulemaking and the judicial review of agency decisions. In 2024, the U.S. Courts of Appeals will also consider issues that will undoubtedly affect the consumer finance industry, including major decisions regarding the Equal Credit Opportunity Act’s prohibition against redlining and the FCRA’s furnisher requirements.

In the News

U.S. Supreme Court

Supreme Court Clears Way for Constitutional Challenges to Agency Structure

In April, the U.S. Supreme Court concluded that federal district courts have jurisdiction to consider constitutional challenges to the SEC and the FTC’s structure and constitutionality in Axon Enterprise, Inc. v. Federal Trade Commission, 598 U.S. 175 (2023). In other words, these constitutional challenges do not fall within the scope of the statutory review schemes laid out in the Securities Exchange Act and Federal Trade Commission Act—which generally provide that a party must make its claims first within the agency itself before the party may raise its claims in a federal court of appeals—and accordingly may be brought in federal district courts for immediate review. In reaching this conclusion, the Court reasoned that judicial review of the parties’ structural constitutional claims would not be meaningful if the parties were required to submit to agency proceedings beforehand, the parties’ challenges went to the agencies’ power to proceed in the first instance and not to specific agency actions, and the parties’ claims fell outside of the agencies’ expertise. With this ruling, parties subject to agency proceedings may raise constitutional claims immediately in district court, instead of waiting until the often-lengthy and resource-intensive agency proceedings conclude.

Supreme Court Requires Stays During Interlocutory Appeals from Denials of Motions to Compel Arbitration

In June, the Supreme Court held in Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023), that district courts must stay their pretrial and trial proceedings while an interlocutory appeal on arbitrability remains pending. Courts of appeals had been split as to whether staying district court proceedings during an interlocutory appeal in these circumstances was required. The Supreme Court’s decision ensures that the parties—and, indeed, district courts—do not expend unnecessary time and resources continuing to litigate the dispute in federal court only for the appellate court to conclude that the dispute should be arbitrated instead.

Supreme Court Hears Argument in Challenge to CFPB’s Funding Mechanism

In October, the Supreme Court heard argument in CFPB v. Consumer Financial Services Association of America, Ltd., No. 22-448, on whether the CFPB’s funding mechanism violates the U.S. Constitution’s Appropriations Clause because it does not receive funding directly from congressional appropriations and instead receives funding from the Federal Reserve. Throughout its argument, the CFPB highlighted that its funding structure is not unprecedented and that Congress has previously approved similar standing appropriations for other agencies. The Supreme Court’s decision in this case is expected by June 2024. Until this issue is resolved, several federal courts have stayed proceedings in cases, including enforcement actions, in which the CFPB is a party pending the Supreme Court’s decision.

Supreme Court Hears Argument in Challenge to SEC’s Use of Administrative Law Judges

In November, the Supreme Court heard argument in SEC v. Jarkesy, No. 22-859, a case that involves a challenge to the constitutionality of the SEC’s use of administrative law judges and could have a significant impact on agency enforcement actions. The SEC brought an enforcement action within the agency against a hedge-fund operator and investment advisor. In a divided opinion in 2022, the Fifth Circuit held (1) that the SEC’s in-house adjudication of this action violated the petitioners’ Seventh Amendment right to a jury trial, (2) that Congress “unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power,” and (3) that the “statutory removal restrictions on SEC [administrative law judges] violate[d] the Take Care Clause of Article II,” which provides that the President must “take Care that the Laws be faithfully executed.” 34 F.4th 446, 449 (5th Cir. 2022). The SEC petitioned for a writ of certiorari, which the Supreme Court granted.

At oral argument, the Supreme Court focused primarily on the first question, and the justices appeared divided. Several justices appeared critical of the idea that an agency can deprive a party of property without a jury. Other justices noted that the Court’s earlier decisions made clear that the Seventh Amendment did not prohibit the creation of new rights and their enforcement through agencies. The Supreme Court’s decision in this case is expected by June 2024. If the Supreme Court agrees with the Fifth Circuit’s decision, the SEC and other agencies may need to bring certain enforcement actions in federal court, instead of relying on their in-house proceedings.

Courts of Appeals

Second Circuit Considers Relevance of Legal Inaccuracy to FCRA Claims

In January, the Second Circuit considered in Mader v. Experian Info. Sols., Inc., 56 F.4th 264 (2d Cir. 2023), whether Experian violated the FCRA when it allegedly reported that the plaintiff continued to carry debt for a private education loan after the plaintiff went through Chapter 7 bankruptcy. The Second Circuit held that the alleged inaccuracy did not violate the FCRA, explaining that Experian’s alleged error was at worst only a “legal” inaccuracy and therefore not cognizable as an “inaccuracy” under the FCRA. “The bespoke attention and legal reasoning required to determine the post-bankruptcy validity of [plaintiff’s] debt means that its status is not sufficiently objectively verifiable to render [plaintiff’s] credit report ‘inaccurate’ under the FCRA.”

Addressing a follow-on issue to the one raised in Mader, the Second Circuit held in July that the FCRA “does not contemplate” a “threshold inquiry into whether an alleged inaccuracy was ‘legal’ and therefore non-cognizable under the FCRA.” Sessa v. Trans Union, LLC, 74 F.4th 38, 40 (2d Cir. 2023). In other words, “there is no bright-line rule providing … that only purely factual or transcription errors are actionable under the FCRA. Rather, in determining whether a claimed inaccuracy is potentially actionable …, a court must determine, inter alia, whether the information in dispute is ‘objectively and readily verifiable.'” Id. (citation omitted).

D.C. Circuit Upholds the Disclosure Requirements of the CFPB’s Prepaid Rule

As previously reported, in February, the D.C. Circuit issued a decision in PayPal, Inc. v. CFPB, 58 F.4th 1273 (D.C. Cir. 2023), concluding that the disclosure requirements of the CFPB’s Prepaid Rule did not violate the EFTA’s prohibition on “mandatory model clauses” because the Rule only provided suggested language for its disclosure requirements, rather than mandatory “specific, copiable language,” and because the Rule’s mandatory formatting and content requirements for disclosures do not fall within the meaning of “model clause.”

The Second Circuit Imposes ‘But-For’ Causation Test for Voiding Agency Action Taken Due to an Unconstitutional Removal Protection

In March, the Second Circuit held in CFPB v. Law Offices of Crystal Moroney, P.C., 63 F.4th 174 (2d Cir. 2023), that in order to show that an unconstitutional provision—such as the unconstitutional removal protection for the Director of the CFPB—inflicted compensable harm, a party must show but-for causation linking an unconstitutional removal protection to the complained-of agency action. In this case, the defendant argued that a civil investigative demand issued by the CFPB at a time when the CFPB Director was shielded from presidential oversight by an unconstitutional removal provision voided the civil investigative demand. The Second Circuit disagreed. Applying the but-for causation test, the Second Circuit held that the law firm could not show that the CFPB Director would not have issued the civil investigative demand but for the unconstitutional removal provision. In addition, the Second Circuit also held that the CFPB’s funding structure was constitutional (as discussed above, the Supreme Court’s decision on this issue is expected by June 2024).

Third Circuit Holds That TILA Does Not Require Itemization of Annual Fees on Credit Card Renewal Notices

In April, the Third Circuit considered in Weichsel v. JP Morgan Chase Bank, N.A., 65 F.4th 105 (3d Cir. 2023), whether an alleged failure to itemize each component of the plaintiff’s annual fee in a credit card’s renewal notice violated TILA. As previously reported, the Third Circuit held that there is no requirement to itemize annual fees on renewal notices. Specifically, the Third Circuit opined that “while there is an itemization requirement in the statutes and regulations governing periodic disclosures, the same requirement is not included in the statutes and regulations applicable to renewal notices.” Moreover, the Third Circuit concluded that renewal notices are not subject to the same disclosure requirements as solicitations and applications.

Fourth Circuit Holds Dual-Purpose Auto Loans Are Exempt from Military Lending Act

In April, the Fourth Circuit held in Davidson v. United Auto Credit Corp., 65 F.4th 124 (4th Cir. 2023), that a loan to an active-duty soldier that not only financed the purchase of a motor vehicle but also provided guaranteed asset protection coverage was exempt from the restrictions of the Military Lending Act (MLA). The MLA regulates lenders when those lenders extend consumer credit to members of the military, but the MLA provides an exception when the loan is offered for the express purpose of financing the purchase of a car and is secured by the car. The Fourth Circuit concluded that a loan that finances both the car and some related costs falls under the statute’s exception because the dual-purpose loan is still offered for the express purpose of financing the car.

Sixth Circuit Finds Standing Based on a Single Ringless Voicemail in TCPA Case

In June, the Sixth Circuit held in Dickson v. Direct Energy, LP, 69 F.4th 338, 345–46 (6th Cir. 2023), that the receipt of an unsolicited ringless voicemail (RVM) rises to the level of a concrete injury sufficient to establish standing because the RVM intruded on the plaintiff’s private sphere, right to seclusion, and sense of privacy. The Sixth Circuit noted that its holding “diverge[d]” from the Eleventh Circuit in Grigorian v. FCA US LLC, 838 F. App’x 390 (11th Cir. 2020), and in Salcedo v. Hanna, 936 F.3d 1162 (11th Cir. 2019). In the Sixth Circuit’s view, those two cases did not have the benefit of the analysis in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021), and did not adequately consider historical analogues.

Eleventh Circuit Holds That Each Consumer Dispute Submitted to Credit Reporting Agency Triggers Statute of Limitations Under the FCRA

In June, the Eleventh Circuit held in Milgram v. Chase Bank USA, N.A., 72 F.4th 1212 (11th Cir. 2023) (per curiam), that the statute of limitations under the FCRA begins to run each time a consumer submits a dispute to a credit reporting agency and the agency or relevant lender does not respond to the complaint as directed by the statute. The court reasoned that fears “that consumers could continually reset the statute of limitations by filing new disputes” were overblown.

Ninth Circuit Holds That Every Violation of the Fair Debt Collection Practices Act (FDCPA) Triggers Its Own One-Year Statute of Limitations

In July, the Ninth Circuit held in Brown v. Transworld Sys., Inc., 73 F.4th 1030 (9th Cir. 2023), that “every alleged FDCPA violation triggers its own one-year statute of limitations as provided in § 1692k(d).” The Ninth Circuit explained that when the alleged FDCPA violation is a debt-collection lawsuit, individual litigation acts can constitute an independent violation of the FDCPA and thus independently trigger the statute of limitations. In order to determine when the alleged FDCPA violation triggers the statute of limitations, the court will consider a two-part test: (1) whether that act was the debt collector’s last opportunity to comply with the statute, and (2) whether the date of the violation is easily ascertainable.

Seventh Circuit Holds That Omissions May Constitute Actionable Inaccuracy Under the FCRA

In August, the Seventh Circuit held in Chaitoff v. Experian Info. Sols., Inc., 79 F.4th 800 (7th Cir. 2023), that an omission may constitute an inaccuracy under the FCRA, 15 U.S.C. § 1681e(b) and §1681i(a). The Seventh Circuit explained that “when it comes to the FCRA, ‘accurate’ means more than just ‘technically correct'” and noted that a credit report is inaccurate “if it omits accurate information that could reasonably be expected to adversely affect a consumer’s creditworthiness.”

Here, the credit report said nothing about the plaintiff’s Trial Period Plan (TPP), which would have brought his account current. The Seventh Circuit held that the omission of the TPP in the credit report was a material omission and that the existence of the TPP was a “factual” and not a “legal omission.” The court explained that the existence of the plaintiff’s TPP was a factual question and that reflecting the TPP on plaintiff’s credit report was well within the defendant’s capabilities. Ultimately, the Seventh Circuit affirmed the grant of summary judgment as to one claim in favor of the defendant based on the fact that the defendant’s policies were reasonable as a matter of law, but concluded that, for a different claim, there were genuine disputes of material fact as to whether the defendant’s reinvestigations of the plaintiff’s dispute of an item on his credit report were reasonable.

Fourth Circuit Holds That Bankruptcy Code Does Not Preempt State Law Claims Pursuant to State’s Debt-Collection Act

In August, the Fourth Circuit held in Guthrie v. PHH Mortg. Corp., 79 F.4th 328 (4th Cir. 2023), that the Bankruptcy Code does not preempt state law claims arising from allegedly improper debt-collection attempts, holding that the state law claims did not stand as an obstacle to the objectives of Congress in enacting the Bankruptcy Code. The plaintiff also brought a FCRA claim, alleging that he repeatedly attempted to inform the defendant that his mortgage loan had been discharged in bankruptcy and engaged in a years-long effort to correct his credit reports through formal disputes. Relying on Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007), in which the Supreme Court clarified that a defendant can willfully violate the FCRA by acting with reckless disregard of its statutory duty, the Fourth Circuit held that the plaintiff’s allegations of the repeated attempts to inform PHH created a genuine dispute of material fact as to whether PHH acted with “reckless disregard” of its statutory duty and thus willfully violated the FCRA.

Seventh Circuit Defines Scope of Permissible Remedies Pursuant to Section 19 of the FTCA

In August, the Seventh Circuit held in FTC v. Credit Bureau Ctr., LLC, 81 F.4th 710 (7th Cir. 2023), that while the FTC could seek restitution in district courts pursuant to the Restore Online Shopper Confidence Act (ROSCA) and Section 19 of the FTCA, 15 U.S.C. § 57b, any funds remaining after providing consumer redress could not be deposited to the U.S. Treasury as disgorgement. This case is another important chapter in the long-running litigation over the remedies available to the FTC under the FTCA.

Eleventh Circuit Agrees With Sister Circuits That Consumers Need Not Prove Actual Damages to Recover for Willful Violations of the FCRA

In November, the Eleventh Circuit held in Santos v. Healthcare Revenue Recovery Grp., LLC, 85 F.4th 1351 (11th Cir. 2023), as vacated and substituted by Santos v. Healthcare Revenue Recovery Grp., LLC., 90 F.4th 1144 (11th Cir. 2024), that a consumer does not have to prove actual damages to recover statutory damages for willful violations of the FCRA. In so ruling, the Eleventh Circuit joined every circuit to have addressed the same issue—the Seventh, Eighth, Ninth, and Tenth Circuits. The Eleventh Circuit explained that consumers have two options to recover damages. The first option allows a consumer to recover “any actual damages sustained by the consumer as a result of the failure.” The second allows a consumer to recover “damages of not less than $100 and not more than $1,000.” Considering both ordinary meaning and statutory context, the Eleventh Circuit held that the term “damages” under the second option does not require proof that the consumer suffered “actual” damages.

Circuit Courts Continue Trend of Dismissing FDCPA Claims for Lack of Standing

In 2023, federal circuit courts continued the 2022 trend of dismissing FDCPA claims on Article III standing grounds, relying on the Supreme Court’s decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021). In February, the Eighth Circuit held that merely receiving a letter that violated the FDCPA did not give the plaintiff standing to bring a suit, finding receipt did not constitute a harm that bore a close relationship to common-law fraudulent misrepresentation and conversion. Bassett v. Credit Bureau Servs., Inc., 60 F.4th 1132, 1137–38 (8th Cir. 2023). In April, the Seventh Circuit held that the allegations that the plaintiff became confused, scared, and alarmed about the status of his bankruptcy discharge as a result of two debt collection letters were insufficient to establish an Article III injury. Pucillo v. Nat’l Credit Sys., Inc., 66 F.4th 634, 638 (7th Cir. 2023). In August, the Seventh Circuit held that the decision to hire an attorney in a debt-collection action and loss of sleep were not harms that are sufficient to establish Article III standing. Choice v. Kohn L. Firm, S.C., 77 F.4th 636, 639 (7th Cir. 2023). Lastly, in October, the Seventh Circuit joined the Tenth and Eleventh Circuits in holding that the disclosure of plaintiff’s debt information to a third-party mail vendor did not constitute an Article III injury as it was not a public communication about her debt. Nabozny v. Optio Sols. LLC, 84 F.4th 731, 735 (7th Cir. 2023).