Alston & Bird Consumer Finance Blog

Circuit Court Decisions

OCC Rule Affirms Valid-When-Made Doctrine

A&B ABstract:

On May 15, the Office of the Comptroller of the Currency  (“OCC”) issued a final rule, effective August 3, 2020, addressing the “valid-when-made” doctrine.  The rule clarifies that the interest rate on a loan originated by a national bank or federal savings association, if permissible at the time of origination, will continue to be a permissible and enforceable term of the loan following a sale, transfer, or assignment of the loan, regardless of whether the third party debt buyer is a federally chartered bank.


In November, 2019 the OCC issued a proposed rule to address the ambiguity created by the Second Circuit in Madden v. Midland Funding, LLC. The Madden court held that a purchaser of a loan (unsecured credit card debt) originated by a national bank could not charge interest at the rate permissible for the bank if that rate would not be permissible under the applicable state usury cap. Madden did not address the valid-when-made doctrine, and the U.S. Supreme Court declined to hear the case in 2016.

Final Rule

The OCC’s final rule, effective August 3, 2020, effectively codifies the valid-when-made doctrine.  Specifically, the rule provides that interest on a loan that is permissible pursuant to section 85 (applicable to national banks) and section 1463(g) (applicable to federally chartered thrifts) of the National Bank Act “shall not be affected by the sale, assignment or other transfer of the loan.” The OCC emphasized that “that sections 85 and 1463(g) incorporate, rather than eliminate, these state caps.”  A bank must comply with the interest rate limit established under the law of the state where it is located. The OCC recognized that disparities between interest rates between banks arise as a result of the state laws that impose such caps.

In affirming the valid-when-made doctrine, the OCC indicated that “to effectively assign a loan contract and allow the assignee to step into the shoes of the national bank assignor, a permissible interest term must remain permissible and enforceable notwithstanding the assignment”.  Further, the OCC, in rebutting comments made during the rulemaking that a third party non-bank debt buyer should not step into the shoes of the national bank originator, observed that “the enforceability of an assigned interest term should [not] depend on the licensing status of the assignor or assignee.”  Simply put, the OCC affirmed that when a bank transfers a loan, interest permissible before the transfer continues to be permissible after the transfer.

The rule does not address which entity is the true lender when a bank transfers a loan to a third party. The OCC’s rule applies to “interest,” as that term is defined in 12 C.F.R. §§ 7.4001(a) and 160.110(a).


The rule is welcome news, ensuring that uncertainty concerning the effects of the Madden decision does not erode the liquidity of the secondary market for loans originated by national banks and federally chartered thrifts.  It effectively levels the playing field by allowing purchasers of these loans to collect the same agreed upon interest rate and contractual loan terms as the original. Such uniformity is critical for the secondary market.  Hopefully, the FDIC will similarly finalize its proposed rule.

Nevertheless, we note that the OCC rulemaking does not reverse Madden, and while the pronouncement should be influential in circuits aside from the Second Circuit, it is expected to face court challenges, not to mention criticism from congressional Democrats.   The saga will likely continue.

Seventh Circuit Declines to Adopt FDCPA “Benign Language” Exception

A&B ABstract:

The Seventh Circuit’s ruling in Preston v. Midland Credit Mgmt. departs from other circuits that have considered whether there is a “benign language” exception under the Fair Debt Collection Practices Act (“FDCPA”). The Seventh Circuit, ruled, as the Consumer Financial Protection Bureau (“CFPB”) urged in an amicus brief, that the FDCPA does not contain a “benign language” exception.

FDCPA Section 1692(f)

Section 1692(f) of the FDCPA broadly prohibits a debt collector from using unfair or unconscionable means to collect or attempt to collect any debt, and enumerates specific examples of prohibited conduct. Section 1692(f)(8) prohibits a debt collector from using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram. However, the section provides that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.

The “Benign Language” Exception

Although Section 1692(f)(8) does not include any exceptions to the prohibition discussed above, courts have found that certain types of “benign language” do not run afoul of the prohibition.  As recognized by the Fifth Circuit and the Eighth Circuit, the “benign language” exception allows words such as “personal and confidential,” “immediate reply requested,” and “forwarding and address correction requested,” and other innocuous language and corporate logos that do not identify the sender as a debt collector to appear on a debt collector’s envelope to a consumer.

Fifth Circuit

The Fifth Circuit (in Goswami v. American Collections Enterprise, Inc.), believed that the text of section 1692(f)(8) was ambiguous and could be read two ways. In isolation, it could be read as barring “any markings on the outside of… [the] envelope other than the name and addresses of the parties. However, if it was read together with the prefatory language of section 1692f it could be read as “only prohibiting markings… that are unfair on unconscionable.” To resolve the ambiguity, the court created the “benign language” exception to allow for language on an envelope that “would not intimate that the contents of the envelope relate to collection of delinquent debts.”

Eighth Circuit

Similarly, the Eighth Circuit (in Strand v. Diversified Collection Service, Inc.) found that a literal reading of the statutory text would “create bizarre results.” Specifically, the Eighth Circuit found under Section 1692f(8) would “a debtor’s address and an envelope’s pre-printed postage would arguably be prohibited, as would any innocuous mark related to the post, such as ‘overnight mail’ and ‘forwarding address correction requested.’” The court examined the legislative history of the FDCPA and found that benign language or other corporate markings and logos on an envelope would not thwart the purpose of the FDCPA.  As a result, it opined that a “benign language” exception should exist for this type of language on a debt collector’s envelope.

Preston v. Midland Credit Management

Factual Allegations

In Preston, the plaintiff appealed the district court’s finding that the “benign language” exception applied to a collection letter the defendant sent the plaintiff. The collection letter was enclosed in an envelope bearing the words “TIME SENSITIVE DOCUMENT.” The internal envelope was enclosed in a larger envelope with a glassine covering, so that the words on the internal envelope were visible to the recipient. The plaintiff argued that the defendant’s use of the words “TIME SENSITIVE DOCUMENT” violated section 1692f(8) of the FDCPA.

CFPB Amicus Brief

The CFPB filed an amicus brief in Preston, petitioning the court to rule that there is no “benign language” exception to the FDCPA. The CFPB argued: (1) that the statutory text of the FDCPA was clear, and (2) there was no statutory ambiguity between the prefatory language of section 1692f and the explicit prohibition in section 1692f(8). The CFPB noted that the “benign language” exception was unnecessary because the FDCPA already provides that debt collectors may “make use of the mails” in communicating with a consumer. The CFPB argued that the FDCPA’s text allowing a debt collector “use of the mails” rendered the “benign language” exception moot, because the language and symbols the courts analyzed would all be allowed by the FDCPA as “use of the mails.”

Interpretation of Eighth and Fifth Circuit Case Law

In analyzing the plaintiff’s claims in Preston, the Seventh Circuit examined the opinions of the Fifth and Eighth Circuits in creating the “benign language” exception. Ultimately, the court declined to recognize any such “benign language” exception in the FDCPA.

The Seventh Circuit found that adhering to the plain wording of the statute would not prohibit the use of a debtor’s address on a debt collection letter, or of pre-printed postage. Rather, the court agreed with the CFPB, finding that because the FDCPA allows for debt collectors to communicate by “use of the mails,” it authorizes any language or symbol needed for communicating by mail to appear on an envelope, but not more. That is, “the use of the mails” provision permits the inclusion of language and symbols that are required to ensure the successful delivery of communications through the mail, but in Preston, the court found that that the inclusion of “TIME SENSITIVE DOCUMENT” was not required to ensure the successful delivery of the communication though the mail, and therefore was in violation of the FDCPA.


The Seventh Circuit’s ruling in Preston casts uncertainty on the status of the “benign language” exception. Although the Seventh Circuit addressed the printed language at issue in the Fifth and Eighth Circuit cases, the Seventh Circuit did not address the use of corporate logos that were not the debt collector’s name. Debt collectors that do business in the Seventh Circuit, comprising Illinois, Indiana, and Wisconsin, should ensure that any letters sent to consumers do not contain any extraneous language that is not used in the ordinary course of sending mail.

Eleventh Circuit Sends a Message: One Text is Not Enough for TCPA Standing

A&B Abstract:

Receiving a single, unsolicited text message is not enough to establish Article III standing to sue under the Telephone Consumer Protection Act (“TCPA”), the Eleventh Circuit held in Salcedo v. Hanna.  The TCPA is a federal statute that makes it illegal to send certain types of telemarketing messages to phones and fax machines.  This decision marks a departure from the Ninth Circuit, creating a circuit split.

Salcedo v. Hanna

On August 28, 2019, the Eleventh Circuit issued an opinion in Salcedo v. Hanna, No. 17-14077, 2019 U.S. App. LEXIS 25967 (11th Cir. Aug. 28, 2019), addressing the issue of Article III standing under the TCPA.

Plaintiff John Salcedo sued attorney Alex Hanna and his law firm after he received one text from them offering a discount on services. Salcedo brought a class action in the Southern District of Florida, seeking statutory damages under the TCPA. The district court denied Hanna’s motion to dismiss and certified the issue of standing for interlocutory appeal.  The Eleventh Circuit, in a three-judge panel decision, held that Salcedo did not suffer a concrete injury, and therefore he did not have standing under Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).

Salcedo alleged that he had to waste time addressing the text, and while doing so, his phone was unavailable for other actions. He also alleged the text invaded his privacy and the use of his phone. The Court distinguished Palm Beach Golf Ctr.-Boca, Inc. v. John G. Sarris, D.D.S., P.A., 781 F.3d 1245 (11th Cir. 2015), an Eleventh Circuit case in which the Court found standing for a plaintiff who received a junk fax. In Palm Beach, the plaintiff was unable to use the fax machine during the time it was receiving the fax, and the fax also involved tangible costs such as paper, ink, and toner.

Additionally, the “intangible costs” Salcedo alleged were distinguishable from those in Palm Beach. While the Court noted that at oral argument Salcedo compared the time he wasted on the text to the wasted fax machine time, his complaint only alleged time wasted in a general manner. Thus, the Court held, “[i]n the absence of a specific time allegation” the case was not the same as Palm Beach.

Finding no outcome-determinative precedent, the Court turned to the framework of Spokeo to determine whether Salcedo alleged a concrete injury in fact, looking to the judgment of Congress and history. The Court viewed Congress’s legislative findings on telemarketing as suggesting that receiving a single text was “qualitatively different from the kinds of things Congress was concerned about when it enacted the TCPA,” because the concerns for “privacy within the sanctity of the home” do not apply to texts in the same way. Cell phones can be silenced and are regularly taken outside of the home, the Court noted.

The Court explained further

Salcedo has not alleged anything like enjoying dinner at home with his family and having the domestic peace shattered by the ringing of the telephone. Nor has he alleged that his cell phone was searched, dispossessed, or seized for any length of time. Salcedo’s allegations of a brief, inconsequential annoyance are categorically distinct from those kinds of real but intangible harms. The chirp, buzz, or blink of a cell phone receiving a single text message is more akin to walking down a busy sidewalk and having a flyer briefly waived in one’s face. Annoying, perhaps, but not a basis for invoking the jurisdiction of the federal courts.

Lastly, the Court clarified that it was “not attempting to measure how small or large Salcedo’s alleged injury is.” Its assessment was “qualitative, not quantitative,” and Salcedo fell short. While time wasted can state a concrete harm, Salcedo’s single text was insufficient.


This decision is likely to pose a hurdle for plaintiffs seeking to certify a class based on alleged TCPA violations in the form of text messages.  The Eleventh Circuit made clear that it does not view text messages in the same light as calls. The need to specify in greater detail harm sufficient to establish Article III standing may require facts not unique to all class members.

Additionally, while in this case one text was not enough to establish standing, the opinion does not establish what is enough to cross that line.   As noted in the concurrence, the Court’s decision is narrow, and “leaves unaddressed whether a plaintiff who alleged that he had received multiple unwanted and unsolicited text messages may have standing to sue under the TCPA.”

The Eleventh Circuit’s decision also marks a departure from the Ninth Circuit, which held in 2017 that two unsolicited texts amounted to a concrete injury. See Van Patten v. Vertical Fitness Grp., Ltd. Liab. Co., 847 F.3d 1037 (9th Cir. 2017).  The Second Circuit has also found that the receipt of unsolicited texts alone, without other injury, is sufficient to show injury-in-fact. Melito v. Experian Mktg. Sols., Inc., 923 F.3d 85, 95 (2d Cir. 2019).

Ninth Circuit Approves Request for Interlocutory Appeal in McShannock v. JP Morgan Chase Bank N.A.

On April 23, 2019, the Ninth Circuit approved a request for an interlocutory appeal in McShannock v. JP Morgan Chase Bank N.A.,[1] to resolve a split amongst the district courts on the reach of preemption under the Home Owners Loan Act (“HOLA”), which governs federal savings banks (“FSBs”). Given that the majority of cases involving HOLA preemption arise in the Ninth Circuit, other courts look to it for guidance. As a result, the outcome in this appeal could redefine the scope of HOLA preemption nationwide.

The issue on appeal is whether HOLA preemption for a loan originated by an FSB applies to conduct occurring after the loan is transferred to a national bank. Currently, district courts within the Ninth Circuit “have taken three distinct positions on this issue.”[2]

  • The first position is that HOLA preemption attaches to loans originated by FSBs and extends to all subsequent loan-related conduct (even if the loan was transferred to a non-FSB such as a national bank).
  • The second position is that that HOLA preemption cannot be asserted by a non FSB at all.
  • The third position is that HOLA preemption attaches to loans originated by FSBs but extends only to loan-related conduct by an FSB and not all subsequent loan related conduct.

While there are three distinct positions, the fight in the interlocutory appeal will be over whether the first or third position is correct. As the district court in McShannock explained, the majority of district courts in the Ninth Circuit have taken the first position, but in the last several years, “the third position represents the current trend of court rulings.”[3]

Advocates for the first position argue that it is the majority approach, that OTS Opinion Letters indicate that HOLA preemption should extend to all subsequent loan-related conduct, and that the OTS’s interpretation of HOLA is consistent with the statute’s rationale and legislative purpose.[4] Also, a number of courts have followed the first position where the loan agreement for the loan at issue expressly indicates that it would be governed by HOLA, thus incorporating HOLA preemption into the terms of loan.

On the other hand, advocates for the third position argue that it has been “the virtually universal trend . . . [for] the last four years,”[5] that HOLA’s legislative history does not indicate that Congress intended HOLA preemption to apply sold to non-FSB entities, and that this lack of Congressional intent undermines the persuasiveness of the OTS’s interpretation of HOLA.[6]

Reviewing these arguments, the McShannock district court adopted the third position. If the McShannock decision is upheld on appeal, it will cement a major shift in the Ninth Circuit’s HOLA preemption jurisprudence, which could have far-reaching implications on cases across the country involving loans originated by FSBs.

Alston & Bird LLP will continue to track developments in this case.

[1] Case No. 19-80030 (Dkt. Entry 15) (9th Cir. Apr. 23, 2019).
[2] See Kenery v. Wells Fargo, N.A., No. 5:13-CV-2411-EJD, 2014 WL 129262, at *3 (collecting cases and describing in detail the split among the district courts).
[3] McShannock v. JP Morgan Chase Bank N.A., 354 F. Supp. 3d 1063, 1075 (N.D. Cal. 2018).
[4] See Metzger v. Wells Fargo Bank, N.A., 2014 WL 1689278 (C.D. Cal. Apr. 28, 2014) (explaining the various rationales for attaching HOLA preemption to FSB-originated loans for their duration).
[5] McShannock, 354 F. Supp. 3d at 1074 (quoting Plaintiffs’ briefing at 6).
[6] See id. at 1074–77 (explaining the various rationales for attaching HOLA preemption only to loan-related conduct by an FSB rather than all subsequent loan-related conduct).