Alston & Bird Consumer Finance Blog

Circuit Court Decisions

Second Circuit Deepens Circuit Split over CFPB Funding Structure

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A&B ABstract:

On March 23, 2023, the Second Circuit held the Consumer Financial Protection Bureau’s (CFPB) funding structure is constitutional.  This decision comes on the heels of the Supreme Court granting certiorari to review the Fifth Circuit’s ruling in Community Financial that reached the opposite conclusion.

The Second Circuit’s Ruling

The Second Circuit case, styled Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, looks at a challenge to a civil investigative demand (CID) for documents made to a law firm that principally advises and services clients seeking to collect debts.  On appeal, the law firm argued the CID could not be enforced because, for among other reasons, the funding structure of the CFPB violated the Appropriations Clause of Article I of the Constitution.

Rejecting this argument, the Second Circuit held that the Appropriations Clause provides “simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.”  That is, if a payment of money from the Treasury is “authorized by statute,” then it does not run afoul of the Appropriations Clause.  And “[t]here can be no dispute that the CFPB’s funding structure was authorized by the CFPBA – a statute passed by Congress and signed into law by the President.”

In reaching this conclusion, the Second Circuit declined to follow the Fifth Circuit’s rationale in Community Financial.  There, the Fifth Circuit reasoned that the CFPB’s funding structure violated the separation of powers embodied in the Appropriations Clause because it was “doubly” insulated from Congressional control.  Specifically, the Fifth Circuit posited that Congress had first ceded control directly over the CFPB’s budget by insulating it from review during the annual appropriations process and second conceded control indirectly by providing that the CFPB’s funding be drawn from a source that was itself outside the appropriations process.

In response to this, the Second Circuit explained that, in its view, the design of the Constitution in the Appropriations Clause was to ensure that the purpose, limit, and fund of every expenditure be ascertained by a previous law.  Thus, as long as the CFPB’s budget had an articulated purpose (as set forth in the CFPA), came from an articulated fund (the earnings of the Federal Reserve System), and had articulable limits (a 12% cap set by Congress in the CFPA), then it was constitutional.  In short, Congress specified the purpose, limit, and fund of its appropriation for the CFPB’s budget in the CFPA, which was all that the Constitution required.

Takeaway

Whether the CFPB’s funding structure is constitutional poses a possibly existential threat to the CFPB’s operations.  The Second Circuit’s decision deepens the split on the issue, which the Supreme Court has already begun undertaking to resolve.  Stay tuned for further updates on how the Supreme Court resolves this split.

Fourth Circuit Rules That a Mortgage Servicer Can Be Liable for FDCPA Violations Even if Not Subject to the FDCPA

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A&B ABstract:

Putative class action plaintiffs recently prevailed on appeal in a case involving mortgage servicing fees charged to Maryland borrowers. In doing so, the opinion opens the door for FDCPA liability for all mortgage servicing activity and other collection activity in Maryland, even if such activity is otherwise exempt from FDCPA liability.

The Maryland Consumer Debt Collection Act

The case is a putative class action challenging certain fees charged by the borrowers’ mortgage servicer in the ordinary course of business. Among other claims, the plaintiffs alleged that the servicer violated the Maryland Consumer Debt Collection Act (MCDCA). Specifically, the MCDCA prohibits a “collector” from “engag[ing] in any conduct that violates §§ 804 through 812 of the federal Fair Debt Collection Practices Act.” The plaintiffs alleged that the attempt to collect certain mortgage servicing fees violated the FDCPA’s proscription for a “debt collector” to engage in “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”

The MCDCA applies to any “collector,” defined as any “person collecting or attempting to collect an alleged debt arising out of a consumer transaction.” The FDCPA, on the other hand, uses the term “debt collector” which is defined with several limitations and exceptions, including for debt that was not in default when obtained. Despite the narrower scope of the FDCPA, plaintiffs in the case argued that a servicer could engage in conduct that violated the FDCPA, and thereby be in violation of the MCDCA, even if the servicer was not a “debt collector” subject to the FDCPA.

The district court dismissed the case before considering class certification, determining that the servicer was not a “collector” under the MCDCA and, likewise, was not a “debt collector” under the FDCPA.

The Fourth Circuit’s Decision

On appeal, the Fourth Circuit reversed and remanded the case for further proceedings, finding that the servicer was a collector under the MCDCA. Critically, the court determined that the servicer could be held liable for engaging in conduct that violated the FDCPA, even if it was not actually subject to the FDCPA. The court reasoned that even though the FDCPA only applies to “debt collectors” and, even though the MCDCA, in turn, only prohibits conduct that violates the FDCPA, an entity could still be in violation of the MCDCA even if it was not engaging in debt collection under the FDCPA. The court concluded that “[t]he MCDCA’s broader definition controls here, as it is not displaced by the federal definition.” The court stated that the MCDCA only incorporated the FDCPA’s “substantive provisions” contained in §§ 804 through 812, thus the FDCPA’s applicable definitions and exemptions, contained in §§ 803, 818 were to be disregarded in determining if a violation of the FDCPA occurred for purposes of the Maryland law.

Takeaway

This decision subjects several otherwise exempt and excluded actors to potential liability for FDCPA violations via the MCDCA within Maryland. In addition to mortgage servicers, who are typically exempt from the FDCPA under normal circumstances, the FDCPA contains a number of other exemptions including for entities collecting their owns debts, process servers, and certain nonprofit organizations performing credit counseling. Under the reasoning of the Fourth Circuit’s decision, all of these actors could now potentially be held liable under the MCDCA for FDCPA violations within Maryland. Furthermore, all such actors arguably need to comply with the strictures of the FDCPA in communicating with consumers. This would include restrictions on the timing, frequency, and format of communications with consumers that do not apply to communications outside the scope of the FDCPA. On February 15, 2022, the court denied a Motion for Rehearing and Rehearing En Banc, thus finalizing the decision.

Following this decision, recent legislation introduced in the Maryland General Assembly may delay foreclosure proceedings in Maryland. On February 3, 2022 a delegate introduced HB 803, which would allow borrowers to file counterclaims in response to foreclosure proceedings, would make additional procedural requirements applicable to such actions, and would prevent a foreclosure from proceeding if a borrower files such a counterclaim. Under the Fourth Circuit’s decision, servicers could experience increased MCDCA challenges alleging violations of the FDCPA that would otherwise not apply, and, combined with the additional procedural requirements and delays contemplated by HB 803, foreclosure proceedings could face significant delays as a result.

While some state laws offer state remedies for a violation of federal law, we are unaware of any case that has interpreted such a law to expand the scope of liability under the incorporated federal law. While states can and have adopted consumer statutes that are more expansive than federal law, it remains to be seen if other courts will now interpret simple incorporation of federal law as something more expansive as well.

The Hunstein Case: Upending Servicing and Debt Collection?

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A&B Abstract:

The U.S. Court of Appeals for the Eleventh Circuit, covering Alabama, Florida, and Georgia, recently decided in Hunstein v. Preferred Collection and Management, Inc., that a debt collector’s communication with its third-party vendor violated section 1692c(b) of the Fair Debt Collection Practices Act (“FDCPA”), which prohibits a debt collector for communicating, in connection with the collection of any debt, with an unauthorized third party.

The FDCPA and Regulation F

 In 1977, Congress enacted the FDCPA to eliminate abusive debt collection practices by debt collectors.  Section 1692c(b) of the FDCPA generally provides that, except with respect to seeking location information:

without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

The FDCPA defines “communication” to mean “the conveying of information regarding a debt directly or indirectly to any person through any medium.”

For decades the FDCPA was enforced by the Federal Trade Commission (“FTC”).  However, prior to the Dodd-Frank Act, no federal regulator had rulemaking authority under the FDCPA.  The Dodd-Frank Act empowered the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) with rulemaking authority with respect to the collection of debts by debt collectors, as defined by the FDCPA.  Prior to finalizing Regulation F, the CFPB conducted market outreach to better understand how debt collectors attempt to collect on accounts.  In July 2016, the CFPB published a study of third-party debt collection operations (“Operations Study”) that recognized debt collection firms’ reliance on vendors (such as print mail services, predictive dialers, voice analytics, payment processes and data servers).  In fact, the CFPB noted that most respondents use an outside vendor for sending written communications.

On November 30, 2020, amended Regulation F,  implementing the FDCPA, was published in the Federal Register with an effective date of November 30, 2021 (which has subsequently been delayed to January 29, 2022).  Regulation F does not specifically address the use of third-party vendors, such as print mail services, although the Operations Study was cited in the preamble to Regulation F.

With regard to civil liability, section 1692k of the FDCPA states that “[n]o provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.”

The Hunstein Case

Despite the CFPB’s implicit recognition of debt collectors’ use of print and other vendors,  a recent court decision suggests that use of certain vendors could violate the FDCPA’s prohibition on third-party communications.  In Hunstein, the U.S. Court of Appeals for the Eleventh Circuit reversed the district court’s judgment, holding that (1) a violation of section 1692c(b) of the FDCPA confers Article III standing; and (2) a debt collector’s transmittal of a consumer’s personal information to its dunning vendor constituted a communication “in connection with the collection of any debt” within the meaning of section 1692c(b).

The facts in this case are not unusual, and reflect the typical interactions between a debt collector and their third-party vendors. Specifically, the debt collector, Preferred Collection and Management Services Inc. (“Preferred”), electronically transmitted information concerning Hunstein’s debt (his name and his status as a debtor, the entity to which he owed the debt, the outstanding balance, the fact that his debt resulted from his son’s medical treatment, and his son’s name) to its third-party vendor. In turn, the vendor used that information to create, print, and mail a dunning letter to Hunstein.  As a result, Hunstein sued alleging that by sending his personal information to the third-party vendor, Preferred had violated section 1692c(b). The district court dismissed Hunstein’s action for failure to state a claim, holding that Hunstein had not sufficiently alleged that Preferred’s transmittal to its third-party vendor violated section 1692c(b), because it was not a communication “in connection with the collection of any debt.”  Hunstein appealed to the Eleventh Circuit. On appeal, the Eleventh Circuit addressed both the issues of Article III standing and whether Preferred’s communication was “in connection with the collection of any debt.”

The court first considered the threshold issue of whether a violation of section 1692c(b) confers Article III standing. Specifically, the court focused on whether Hunstein had suffered an injury in fact, which requires an invasion of a legally protected interest that is both concrete and particularized and actual or imminent, not conjectural or hypothetical. The court indicated that the “standing question here implicates the concreteness sub-element.”  The court explained that a plaintiff can satisfy the concreteness requirement in one of three ways. A plaintiff can meet this requirement by (1) alleging a tangible harm (e.g., physical injury, financial loss, and emotional distress), (2) alleging a risk of real harm, or (3) identifying a statutory violation that gives rise to an “intangible-but-nonetheless-concrete injury.”  The court ultimately concluded that Hunstein had met the concreteness requirement “[b]ecause (1) § 1692c(b) bears a close relationship to a harm that American courts have long recognized as cognizable and (2) Congress’s judgment indicates that violations of §1692c(b) constitute a concrete injury.”

After concluding that Hunstein had standing to sue, the court considered whether Preferred’s transmittal to its third-party vendor was a “communication in connection with the collection of any debt.” At the outset, the court noted that the parties were in agreement that Preferred was a “debt collector,” that Hunstein was a “consumer,” and that the debt at issue was a “consumer debt,” as contemplated under the FDCPA. Moreover, the parties agreed that Preferred’s transmittal of Hunstein’s information to the third-party vendor constituted a “communication” within the meaning of the FDCPA. Thus, the only question remaining before the court was whether Preferred’s communication was “in connection with the collection of any debt.” The court began its analysis by reviewing the plain meaning of the phrase “in connection with” and the word “connection,” and determined that “in connection with” and “connection” are generally defined to mean “with reference to or concerning” and “relationship or association,” respectively.  Based on these definitions, and the facts at issue, the court found it “inescapable that Preferred’s communication to [its third-party vendor] as least ‘concerned,’ was ‘with reference to,’ and bore a ‘relationship or association’ to its collection of Hunstein’s debt.”  Accordingly, the court held that Hunstein had alleged a communication “in connection with the collection of any debt” as that phrase is commonly understood.

The court next considered, and rejected, Preferred’s three arguments that its communication was not “in connection with the collection of any debt.” First, the court found Preferred’s reliance on prior Eleventh Circuit decisions interpreting the phrase “in connection with the collection of any debt,” as used under section 1692e, to be misplaced. The court explained that in those line of cases, the court had focused on the language of the underlying communications that were at issue. However, the court found that the district court’s conclusion that the phrase “in connection with the collection of any debt” necessarily entails a demand for payment “defies the language and structure of § 1692c(b) for two separate but related reasons—neither of which applies to § 1692e.” First, the court explained that the “demand-for-payment interpretation would render superfluous the exceptions spelled out in §§ 1692c(b) and 1692b.” The court noted that under section 1692c(b), “[c]ommunications with four of the six excepted parties—a consumer reporting agency, the creditor, the attorney of the creditor, and the attorney of the debt collector—would never include a demand for payment,” and that the “same is true of the parties covered by § 1692b and, by textual cross-reference, excluded from § 1692c(b)’s coverage.” Accordingly, the court held that the phrase “in connection with the collection of any debt” in section 1692c(b) must mean something more than a mere demand for payment, so as not to render “Congress’s enumerated exceptions…redundant.”

The court also rejected Preferred’s argument that the court adopt a holistic, multi-factoring balancing test that was adopted by the Sixth Circuit in its unpublished opinion in Goodson v. Bank of Am., N.A., 600 Fed. Appx. 422 (6th Cir. 2015), for two reasons: (1) “Goodson and the cases that have relied on it concern § 1692e—not § 1692c(b),” and (2) sections 1692c(b) and 1692e differ both “linguistically, in that the former includes a series of exceptions that an atextual reading risks rendering meaningless, while the latter does not, and…operationally, in that they ordinarily involve different parties.” Moreover, the court found that “in the context of § 1692c(b), the phrase ‘in connection with the collection of any debt’ has a discernible ordinary meaning that obviates the need for resort to extratextual ‘factors.’”

Finally, the court rejected Preferred’s “industry practice” argument—namely that there is widespread use of mail vendors and a relative dearth of FDCPA suits against them—holding that simply because “this is (or may be) the first case in which a debtor has sued a debt collector for disclosing his personal information to a mail vendor hardly proves that such disclosures are lawful.”

In holding that Preferred’s communication with its third-party vendor constituted a communication “in connection with the collection of any debt,” the court acknowledged that its “interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry…[and that its] reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost.” Moreover, the court recognized that “those costs may not purchase much in the way of ‘real’ consumer privacy.” Nevertheless, the court noted that its “obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable.”

Takeaway 

The court’s textual reading of the statute fails to account for the technological changes to the industry since the FDCPA was enacted in 1977.

The CFPB has the authority to take a more pragmatic view, either through its advisory opinion program or formal rulemaking to recognize the important role of vendors while also putting in proper guardrails to protect consumers’ privacy.  Such a view would be consistent with the FTC’s treatment of this issue.  The FTC previously indicated that a debt collector could contact an employee of a telephone or telegraph company in order to contact the consumer, without violating the prohibition on communication to third parties, if the only information given is that necessary to enable the collector to transmit the message to, or make the contact with, the consumer. Presumably, a debt collector would have to transmit much the same information for purposes of communicating with the debtor through a letter vendor.

Congress also has the authority to modernize the FDCPA.  The House of Representatives recently passed a comprehensive debt collection bill (H.R. 2547, the Comprehensive Debt Collection Improvement Act, sponsored by Chairwoman Waters). While this bill currently doesn’t address the issue in Hunstein, that could be remedied in the Senate.

The consumer finance industry will be closely watching the Hunstein case as it works through the appeal process, as well as how other courts, Congress, CFPB and other regulators react.

Texas Court Strikes Down Federal Eviction Moratorium

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A&B ABstract: On February 25, 2021, Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas entered a declaratory judgment that the nationwide eviction moratorium ordered by the U.S. Centers for Disease Control and Prevention (“CDC”) in response to the COVID-19 pandemic is invalid under Article I of the U.S. Constitution.

The CARES ACT Moratorium

As we previously wrote, the CARES Act imposed a 120-day moratorium on certain residential evictions that elapsed on August 25, 2020.  With this date impending, on August 8, President Trump directed executive agencies to “take all lawful measures to prevent residential evictions and foreclosures resulting from financial hardships caused by COVID-19.” He also ordered the CDC and the Department of Health and Human Services (“HHS”) to consider whether any measures “temporarily halting residential evictions” are “reasonably necessary to prevent further spread of COVID-19” between states.

The CDC Emergency Order

In response, on September 4, the CDC issued an emergency order imposing a nationwide moratorium on certain residential evictions through December 31, 2020 (“CDC Order”).  In doing so, the CDC coordinated with HHS and the Department of Housing and Urban Development (“HUD”). The CDC Order prevents the eviction of any tenant who certifies that he or she: (1) is “using best efforts to obtain all governmental assistance for housing”; (2) earns no more than $99,000 per year in income; (3) cannot pay rent in full due to a substantial loss in income or extraordinary medical expenses; (4) is “using best efforts to make timely partial payments”; and (5) would likely become homeless, or be forced to live in a shared living setting, if evicted.

Significantly, the CDC Order does not provide any compensation for landlords or property owners who are prevented from evicting non-paying tenants, nor does it establish any hearing process for challenges to a tenant’s Declaration.  Conversely, the Order also does not exempt tenants from their legal obligation to pay outstanding rent they accumulate.  The CDC has since extended the moratorium to March 31, 2021.

The Constitutional Challenge

One individual landlord and six property management companies operating in Texas filed suit to challenge the constitutionality of the CDC order.  They claimed that it exceeds the federal government’s power to regulate “commerce” under Article I of the U.S. Constitution.  Given that this was a purely legal issue, the plaintiffs requested – and the Court agreed – that the matter should be decided on summary judgment briefing without need for discovery.

The Court’s Decision

In his decision, Judge Barker acknowledged that eviction moratoriums may be lawful as part of state laws managing eviction procedures generally and under states’ broad “police powers” to promote “the lives, health, morals, comfort and general welfare” of their citizens.  He contrasted such state-level actions to this federal moratorium, which he described as a significant expansion of federal power, stating (slip op. at 2):

The federal government cannot say that it has ever before invoked its power over interstate commerce to impose a residential eviction moratorium. It did not do so during the deadly Spanish Flu pandemic.  Nor did it invoke such a power during the exigencies of the Great Depression. The federal government has not claimed such a power at any point during our Nation’s history until last year.

The court also analyzed Congress’s power under the Commerce Clause to regulate interstate commerce, as well as other constitutional provisions, and concluded that the moratorium exceeds the federal government’s authority.  In large part, this is because Judge Barker determined that the decision to evict a tenant is not an “economic” act within Congress’s power to regulate.

Importantly, the court did not enter an injunction against enforcement of the moratorium, but left open that possibility if the federal government does not abide by the declaratory judgment.  In the meantime, the government has already announced that it will appeal the decision to the U.S. Court of Appeals for the Fifth Circuit.

Takeaways

This decision contrasts with those of other courts in Louisiana (Chambless Enters. v. Redfield) and Georgia (Brown v. Azar) that struck down other constitutional challenges to the CDC moratorium.  One might also argue that Judge Barker improperly disregarded several grounds cited in support of the CDC moratorium — for example, that a massive wave of evictions could drive up infections and further destabilize the economy.  Given the conflicting precedents, and the public health circumstances of the COVID-19 pandemic, there appears to be a reasonable likelihood that the decision will be struck down even by the relatively conservative Fifth Circuit.

Further, because Judge Barker did not issue an injunction, and because the declaratory judgment was limited to the plaintiffs, the decision does not extend nationwide.  As the Department of Justice noted in announcing its appeal, “[t]he decision . . . does not extend beyond the particular plaintiffs . . . and it does not prohibit the application of the CDC’s eviction moratorium to other parties. For other landlords who rent to covered persons, the CDC’s eviction moratorium remains in effect.”  Absent a broad injunction, the decision has very limited effect.  Nonetheless, the ultimate outcome of Terkel v. CDC could have important implications for other courts considering the scope of government action in response to the COVID-19 pandemic, particularly if it is upheld on appeal or ultimately heard by the U.S. Supreme Court.   

Eleventh Circuit Is Not So Sweet To Consumer Plaintiffs Alleging FACTA Violations

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Supreme Court

A&B Abstract:

The Eleventh Circuit’s recent decision in Muransky v. Godiva Chocolatier, Inc., No. 16-16486 (11th Cir. Oct 28, 2020) marks a shift in the court’s position regarding what a consumer plaintiff must allege in order to demonstrate Article III standing under Spokeo, Inc. v. Robins.  Although a three-judge panel of the court previously held that a procedural violation of the Fair and Accurate Credit Transactions Act was sufficient to confer Article III standing, a split en banc Eleventh Circuit recently found that a plaintiff must allege more than a “bare procedural violation, divorced from any concrete harm.”  Through its ruling, the Eleventh Circuit is now aligned with the Second, Third, Seventh, and Ninth Circuits in requiring concrete harm as a necessary prerequisite for Article III standing.

Discussion:

In a 7 to 3 decision, the Eleventh Circuit vacated a previous ruling affirming a $6.3 million settlement between Godiva Chocolatier and a class represented by Dr. David Muransky on the ground that Muransky lacked Article III standing under Spokeo, Inc. v. Robins to sue Godiva for a violation of FACTA.

Muransky brought suit alleging that a Godiva cashier gave him a receipt showing his credit card’s first six and last four digits—too many digits under FACTA. FACTA prohibits retailers from printing “more than the last 5 digits of the credit card number or the expiration date” on the consumer’s receipt.  Retailers can face a statutory penalty of between $100 and $1,000 for each receipt featuring more than the permitted five digits, with the size of the penalty dependent on whether consumers can prove the retailer was willfully negligent.

Muransky claimed that Godiva’s failure to fully truncate his credit card digits led to an increased risk of identify theft.  Godiva ultimately agreed to pay $6.3 million to settle the suit.  During the approval process, a class member objected to the settlement on the basis that Muransky lacked Article III standing because he failed to allege a “concrete injury” and the alleged FACTA violation—an increased risk of harm—did not present a “material risk” of harm. After the district court approved the settlement, the objector appealed.  A three-judge panel of the Eleventh Circuit subsequently upheld the settlement after finding that an increased risk of identity theft was enough to bring FACTA claims.

In a ruling last week, the full court reconsidered the standing issue and changed course.  The Eleventh Circuit held that Muransky did not have standing under FACTA to either settle with Godiva or pursue a class action because he had not suffered any harm when Godiva printed 10 of his credit card digits.  The Eleventh Circuit began by rejecting Muransky’s argument that a bare procedural violation of FACTA—the printing of 10 digits on his credit card receipt—was enough to confer Article III standing.  Instead, the Supreme Court’s Spokeo decision requires a plaintiff to also allege concrete harm, something Muransky failed to do.

The Eleventh Circuit then addressed Muransky’s argument that Godiva’s FACTA violation exposed Muransky and the class members to an elevated risk of identity theft.  According to the court, Muransky’s “naked assertion” that he faced an increased risk of identity theft is the “kind of conclusory allegation” that is simply not enough to demonstrate concrete harm and therefore not enough to confer Article III standing.

Three of the judges—two of whom made up the original Eleventh Circuit panel that affirmed the settlement—dissented from the majority.  Judge Wilson believed that Muransky had plausibly alleged that Godiva’s FACTA violation elevated his risk of identity theft—something that was sufficient to demonstrate concrete harm.  Judge Martin dissented on the ground that the Supreme Court’s Spokeo decision held that “not all statutory violations result in concrete injury.”  According to Judge Martin, “a plaintiff need not allege anything more than a violation of the statute itself” and therefore she believed that Muransky “was not required to allege any additional harm beyond the statutory violation alleged in his complaint.”  Judge Jordan also dissented, agreeing with the points made by both Judge Wilson and Judge Martin.

The majority’s holding is consistent with prior decisions from the Second Circuit (Crupar-Weinmann v. Paris Baguette Am., Inc., 861 F.3d 76 (2d Cir. 2017)), Third Circuit (Kamal v. J. Crew Group, Inc., 918, F.3d 102 (3d Cir. 2019), Seventh Circuit (Meyers v. Nicolet Restaurant of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016)), and Ninth Circuit (Bassett v. ABM Parking Services, Inc., 883 F.3d 776 (9th Cir. 2018)). Each of those cases involved a violation of the FACTA truncation requirement involving the printing of the credit card expiration date on the receipt.  In each case, the court held that the plaintiff lacked standing to sue.

Following the Eleventh Circuit’s ruling, the D.C. Circuit is currently the only federal appeals court to have concluded that a bare procedural violation of FACTA’s truncation requirement is sufficient to confer Article III standing. But, as the Eleventh Circuit recognized, that conclusion was based “on significantly different facts.”  In Jeffries v. Volume Services of America, 2019 WL 2750856 (D.C. Cir. July 2, 2019), the retailer printed all 16 digits of the plaintiff’s credit card number and the expiration date of the card on the receipt.  The D.C. Circuit held that the “egregious” FACTA violation of printing all 16 digits and the expiration date created a real risk of harm to the plaintiff because it created “the nightmare scenario FACTA was enacted to prevent” and provided “sufficient information for a criminal to defraud her.”

Takeaways:

The decision in Muransky solidifies the existing circuit court precedent holding that plaintiffs asserting FACTA claims will lack Article III standing if they allege nothing more than the simple procedural harm without any actual concrete harm.  The prior decision in Muransky provided plaintiffs with some authority for allowing a class action to proceed based on just the procedural violation, but that decision is no longer good law.

Therefore, in order to bring FACTA class actions, plaintiffs will need to allege facts sufficient to show something more than an increased risk of harm.  Given the nature of the underlying violation, it will remain difficult for plaintiffs to allege some identifiable harm as a result of the FACTA violation.