Chapter 41 CONSUMER PROTECTION State and Federal Consumer Protection Agencies [41-1] State & Local Consumer Protection Agencies[41-1a] The Federal Trade Commission [41-1b] Standards Remedies The Consumer Product Safety Commission [41-1c] Consumer Financial Protection Bureau [41-1d] Other Federal Consumer Protection Agencies [41-1e] Consumer Purchases [41-2] Federal Warranty Protection [41-2a] Presale Disclosures Labeling Requirements Limitation on Disclaimers State "Lemon Laws" [41-2b] Consumer Right of Rescission [41-2c] Consumer Credit Transactions [41-3] Access to the Market [41-3a] Disclosure Requirements[41-3b] Credit Accounts ARMs Home Equity Loans Billing Errors Settlement Charges Mortgage Disclosure Improvement Act Mortgage Reform and Anti- Predatory Lending Act Contract Terms [41-3a] Consumer Credit Card Fraud [41-3d] Fair Credit Reportage [41-3e] Credit Card Bill of Rights [41-3f] Creditors' Remedies [41-4] Wage Assignments and Garnishment [41-4a] Security Interests in Goods [41-4b] Debt Collection Practices [41-4c] Cases in This Chapter FTC v. Wyndham Worldwide Corp. Household Credit Services, Inc. v. Pfenning Freeman v. Quicken Loans, Inc. Jerman v. Carlisle, Mc-Nellie, Rini, Kramer & Ulrich LPA. Chapter Outcomes After reading and studying this chapter, the student should be able to: • Describe the role of the Federal Trade Commission (FTC) and the major enforcement sanctions that it may use. • Describe the role and workings of (1) the Consumer Product Safety Commission (CPSC) and (2) the Consumer Financial Protection Bureau (CFPB). • Explain the principal provisions of the Magnuson-Moss Warranty Act and distinguish between a full and a limited warranty. • Describe what information a creditor must provide a consumer before the consumer incurs the obligation. • Outline the major remedies that are available to a creditor. TEACHING NOTES Some consumer protection statutes are enforced only by governmental agencies, some by both the government and the consumer, and others by only the consumer. 41-1 STATE & FEDERAL CONSUMER PROTECTION AGENCIES 41-1a State and Local Consumer Protection Agencies These agencies typically deal with fraudulent and deceptive trade practices and sales practices; may also help resolve consumer complaints about defective goods or poor service. State attorneys generally enforce laws against consumer fraud. Due to deregulation, the federal government’s role in consumer protection has begun to diminish, and the states have correspondingly expanded their role. *** Chapter Outcome *** Discuss the role of the FTC and the major enforcement sanctions that it may use. 41-1b The Federal Trade Commission The Federal Trade Commission Act (FTCA) of 1914 prohibits businesses from engaging in unfair methods of competition and unfair or deceptive acts or practices (such as fraudulent sales techniques) and created the Federal Trade Commission (FTC) as the regulatory “watchdog” agency to issue substantive “trade regulation rules” and to conduct appropriate investigations and hearings. The FTC and the Antitrust Division of the Department of Justice are responsible for antitrust enforcement at the Federal level The agency also has the option to seek a cease and desist order. Standards —The FTC has issued three policy statements addressing the meaning of unfairness: (1) An injury is unfair if it is substantial, not outweighed by any benefits to consumers or competition, and is one that consumers themselves could not reasonably have avoided. (2) The meaning of deception—the basis of most FTC consumer protection actions—is a misrepresentation, omission, or practice that is likely to mislead a consumer acting reasonably in the circumstances, to the consumer’s detriment. Thus, deception may occur through false representation or material omission, or through failure to disclose important product information necessary to correct a false and material expectation created in the consumer’s mind by the product or by the circumstances of sale. (3) The policy of ad substantiation requires that advertisers have a reasonable basis (or proof) for their claims at the time they make such claims. In an effort to ensure that the FTC’s guidance for online advertisers stays current with changes in digital media and internet searches, in June 2013 the FTC sent letters to search engine companies to update guidance published in 2002 on distinguishing paid search results and other forms of advertising from natural search results. The letters note that in recent years paid search results have become less distinguishable as advertising, and the FTC is urging the search industry to make sure the distinction is clear. Failing clearly and prominently to distinguish advertising from natural search results could be a deceptive practice. CASE 41–1 FTC v. WYNDHAM WORLDWIDE CORP. United States Court of Appeals, Third Circuit, 2015 799 F. 3d 236 Ambro, J. The Federal Trade Commission Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a). In 2005 the Federal Trade Commission began bringing administrative actions *** against companies with allegedly deficient cybersecurity that failed to protect consumer data against hackers. The vast majority of these cases have ended in settlement. On three occasions in 2008 and 2009 hackers successfully accessed Wyndham Worldwide Corporation’s computer systems. In total, they stole personal and financial information for [over 619,000] consumers leading to over $10.6 million dollars in fraudulent charges. The FTC filed suit in federal District Court, alleging that Wyndham’s conduct was an unfair practice and that its privacy policy was deceptive. The District Court denied Wyndham’s motion to dismiss, and we granted interlocutory appeal on two issues: whether the FTC has authority to regulate cybersecurity under the unfairness prong of §45(a); and, if so, whether Wyndham had fair notice its specific cybersecurity practices could fall short of that provision. *** Wyndham Worldwide is a hospitality company that franchises and manages hotels and sells timeshares through three subsidiaries. Wyndham licensed its brand name to approximately 90 independently owned hotels. Each Wyndham-branded hotel has a property management system that processes consumer information that includes names, home addresses, email addresses, telephone numbers, payment card account numbers, expiration dates, and security codes. Wyndham “manage[s]” these systems and requires the hotels to “purchase and configure” them to its own specifications. It also operates a computer network in Phoenix, Arizona, that connects its data center with the property management systems of each of the Wyndham-branded hotels. The FTC alleges that, at least since April 2008, Wyndham engaged in unfair cybersecurity practices that, “taken together, unreasonably and unnecessarily exposed consumers’ personal data to unauthorized access and theft.” [Citation.] This claim is fleshed out as follows. 1. The company allowed Wyndham-branded hotels to store payment card information in clear readable text. 2. Wyndham allowed the use of easily guessed passwords to access the property management systems. For example, to gain “remote access to at least one hotel’s system,” which was developed by Micros Systems, Inc., the user ID and password were both “micros.” 3. Wyndham failed to use “readily available security measures”—such as firewalls—to “limit access between [the] hotels’ property management systems, ... corporate network, and the Internet.” 4. Wyndham allowed hotel property management systems to connect to its network without taking appropriate cybersecurity precautions. *** 5. Wyndham failed to “adequately restrict” the access of third-party vendors to its network and the servers of Wyndham-branded hotels. *** 6. It failed to employ “reasonable measures to detect and prevent unauthorized access” to its computer network or to “conduct security investigations.” 7. It did not follow “proper incident response procedures.” The hackers used similar methods in each attack, and yet Wyndham failed to monitor its network for malware used in the previous intrusions. *** The Federal Trade Commission Act of 1914 prohibited “unfair methods of competition in commerce.” [Citation.] *** Congress designed the term as a “flexible concept with evolving content,” [citation] and “intentionally left [its] development ... to the Commission,” [Citation.] *** For the next few decades, the FTC interpreted the unfair-practices prong primarily through agency adjudication. But in 1964 it issued a “Statement of Basis and Purpose” for unfair or deceptive advertising and labeling of cigarettes, [citation], which explained that the following three factors governed unfairness determinations: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common-law, statutory or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and] (3) whether it causes substantial injury to consumers (or competitors or other businessmen). *** In 1994, Congress codified the [FTC rule] at 15 U.S.C. §45(n): The Commission shall have no authority under this section ... to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination. *** Wyndham argues (for the first time on appeal) that the three requirements of 15 U.S.C. §45(n) are necessary but insufficient conditions of an unfair practice and that the plain meaning of the word “unfair” imposes independent requirements that are not met here. Arguably, §45(n) may not identify all of the requirements for an unfairness claim. (While the provision forbids the FTC from declaring an act unfair “unless” the act satisfies the three specified requirements, it does not answer whether these are the only requirements for a finding of unfairness.) *** *** Continuing on, Wyndham asserts that a business “does not treat its customers in an ‘unfair’ manner when the business itself is victimized by criminals.” It offers no reasoning or authority for this principle, and we can think of none ourselves. Although unfairness claims “usually involve actual and completed harms,” [citation.], “they may also be brought on the basis of likely rather than actual injury,” [citation.]. And the FTC Act expressly contemplates the possibility that conduct can be unfair before actual injury occurs. 15 U.S.C. §45(n) (“[An unfair act or practice] causes or is likely to cause substantial injury”). More importantly, that a company’s conduct was not the most proximate cause of an injury generally does not immunize liability from foreseeable harms. [Citation.] *** For good reason, Wyndham does not argue that the cybersecurity intrusions were unforeseeable. That would be particularly implausible as to the second and third attacks. Finally, Wyndham posits a reductio ad absurdum, arguing that if the FTC’s unfairness authority extends to Wyndham’s conduct, then the FTC also has the authority to “regulate the locks on hotel room doors, ... to require every store in the land to post an armed guard at the door,”, and to sue supermarkets that are “sloppy about sweeping up banana peels,” *** The argument is alarmist to say the least. And it invites the tart retort that, were Wyndham a supermarket, leaving so many banana peels all over the place that 619,000 customers fall hardly suggests it should be immune from liability under §45(a). We are therefore not persuaded by Wyndham’s arguments that the alleged conduct falls outside the plain meaning of “unfair.” *** Having rejected Wyndham’s arguments that its conduct cannot be unfair, we assume for the remainder of this opinion that it was. *** Wyndham argues it was entitled to “ascertainable certainty” of the FTC’s interpretation of what specific cybersecurity practices are required by §45(a). Yet it has contended repeatedly—no less than seven separate occasions in this case—that there is no FTC rule or adjudication about cybersecurity that merits deference here. The necessary implication, one that Wyndham itself has explicitly drawn on two occasions noted below, is that federal courts are to interpret §45(a) in the first instance to decide whether Wyndham’s conduct was unfair. *** Wyndham’s position is unmistakable: the FTC has not yet declared that cybersecurity practices can be unfair; there is no relevant FTC rule, adjudication or document that merits deference; and the FTC is asking the federal courts to interpret §45(a) in the first instance to decide whether it prohibits the alleged conduct here. The implication of this position is similarly clear: if the federal courts are to decide whether Wyndham’s conduct was unfair in the first instance under the statute without deferring to any FTC interpretation, then this case involves ordinary judicial interpretation of a civil statute, and the ascertainable certainty standard does not apply. The relevant question is not whether Wyndham had fair notice of the FTC’s interpretation of the statute, but whether Wyndham had fair notice of what the statute itself requires. *** We thus conclude that Wyndham was not entitled to know with ascertainable certainty the FTC’s interpretation of what cybersecurity practices are required by §45(a). Instead, the relevant question in this appeal is whether Wyndham had fair notice that its conduct could fall within the meaning of the statute. If later proceedings in this case develop such that the proper resolution is to defer to an agency interpretation that gives rise to Wyndham’s liability, we leave to that time a fuller exploration of the level of notice required. For now, however, it is enough to say that we accept Wyndham’s forceful contention that we are interpreting the FTC Act (as the District Court did). As a necessary consequence, Wyndham is only entitled to notice of the meaning of the statute and not to the agency’s interpretation of the statute. *** Having decided that Wyndham is entitled to notice of the meaning of the statute, we next consider whether the case should be dismissed based on fair notice principles. We do not read Wyndham’s briefs as arguing the company lacked fair notice that cybersecurity practices can, as a general matter, form the basis of an unfair practice under §45(a). Wyndham argues instead it lacked notice of what specific cybersecurity practices are necessary to avoid liability. We have little trouble rejecting this claim. To begin with, Wyndham’s briefing focuses on the FTC’s failure to give notice of its interpretation of the statute and does not meaningfully argue that the statute itself fails fair notice principles. *** *** Wyndham’s *** challenge falls well short given the allegations in the FTC’s complaint. As the FTC points out in its brief, the complaint does not allege that Wyndham used weak firewalls, IP address restrictions, encryption software, and passwords. Rather, it alleges that Wyndham failed to use any firewall at critical network points, [citation], did not restrict specific IP addresses at all, [citation], did not use any encryption for certain customer files, [citation], and did not require some users to change their default or factory-setting passwords at all, [citation]. Wyndham did not respond to this argument in its reply brief. Wyndham’s *** challenge is even weaker given it was hacked not one or two, but three, times. At least after the second attack, it should have been painfully clear to Wyndham that a court could find its conduct failed the cost-benefit analysis. That said, we leave for another day whether Wyndham’s alleged cybersecurity practices do in fact fail, an issue the parties did not brief. We merely note that certainly after the second time Wyndham was hacked, it was on notice of the possibility that a court could find that its practices fail the cost-benefit analysis. *** Before the attacks, the FTC also filed complaints and entered into consent decrees in administrative cases raising unfairness claims based on inadequate corporate cybersecurity. The agency published these materials on its website and provided notice of proposed consent orders in the Federal Register. *** *** The three requirements in §45(n) may be necessary rather than sufficient conditions of an unfair practice, but we are not persuaded that any other requirements proposed by Wyndham pose a serious challenge to the FTC’s claim here. Furthermore, Wyndham repeatedly argued there is no FTC interpretation of §45(a) or (n) to which the federal courts must defer in this case, and, as a result, the courts must interpret the meaning of the statute as it applies to Wyndham’s conduct in the first instance. Thus, Wyndham cannot argue it was entitled to know with ascertainable certainty the cybersecurity standards by which the FTC expected it to conform. Instead, the company can only claim that it lacked fair notice of the meaning of the statute itself —a theory it did not meaningfully raise and that we strongly suspect would be unpersuasive under the facts of this case. We thus affirm the District Court’s decision. Remedies — In addition the FTC has employed three other remedies: (1) affirmative disclosure — requires certain information in an ad so that it is not considered deceptive (2) corrective advertising — requires an advertiser who has made a deceptive claim to disclose in future ads that prior claims were untrue (3) multiple product orders — require a deceptive advertiser to cease and desist from any future deception in regard to all products sold by the company *** Chapter Outcome *** Describe the role and workings of (1) the Consumer Product Safety Commission (CPSC) and (2) the Consumer Financial Protection Bureau (CFPB). 41-1c The Consumer Product Safety Commission In 1972 Congress enacted the Consumer Product Safety Act (CPSA), which established an independent Federal regulatory agency, the Consumer Product Safety Commission (CPSC). The purposes of the Consumer Product Safety Commission (CPSC) are to: (1) protect the public against unreasonable risks of injury from consumer products, (2) assist consumers evaluate the comparative safety of consumer products, (3) develop uniform safety standards for consumer products and to minimize conflicting state and local regulations, and (4) promote research and investigation into the causes and prevention of product-related deaths, illnesses, and injuries. The CPSC enforces four statutes previously enforced by other agencies (called the “transferred acts”): Federal Hazardous Substances Act (including an amendment regulating toys), the Flammable Fabrics Act, the Poison Prevention Packaging Act, and the Refrigerator Safety Act. In 2008, Congress enacted the Consumer Product Safety Improvement Act (CPSIA). To provide the public with immediate access to safety information about consumer products, one of the CPSIA’s provisions requires the CPSC to create a searchable public database of reports of harm related to the use of products within the CPSC’s jurisdiction. Members of the public can search the CPSC’s Publicly Available Consumer Product Safety Information Database for safety information about products. Product manufacturers that are identified in a report may submit comments to be displayed in the database along with the report. Information about product recalls is also available in the database. 41-1d Consumer Financial Protection Bureau In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the most significant change to U.S. financial regulation since the New Deal. The Dodd-Frank Act establishes the Consumer Financial Protection Bureau (CFPB), an independent executive agency housed within the Federal Reserve, to regulate the offering and provision of consumer financial products or services under the existing Federal consumer financial laws. The primary goal of the CFPB is to ensure that all consumers have access to markets for consumer financial products and services and that markets for consumer financial services and products are fair, transparent, and competitive. The CFPB has broad rulemaking, supervisory, and enforcement authority over persons engaged in offering or providing a consumer financial product or service. The Act excludes certain activities and parties from the CFPB’s authority, including auto dealers, real estate brokerage activities, sellers of nonfinancial goods and services, legal practitioners, employee benefit plans, and persons regulated by the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, or a State Securities Commission. The CFPB may impose civil penalties for violations of a law, rule, or final order or condition imposed in writing by the CFPB in the following amounts: (1) up to $5,000 per day for any violation, (2) up to $25,00 per day for reckless violations, and (3) up $1 million per day for knowing violations. Civil penalties are paid into the CFPB Civil Penalty Fund established by the Dodd-Frank Act. In 2013, the CFPB issued a rule creating a process for allocating money from the Fund to compensate victims harmed by a person or company that was fined in an enforcement action brought by the CFPB. 41-1e Other Federal Consumer Protection Agencies National Highway Traffic Safety Administration (NHTSA) —Established in 1966; sets motor vehicle safety standards; requires manufacturers to report possible safety defects, and may seek auto recalls; provides grants-in-aid for state highway safety programs and conducts research on highway safety. Food and Drug Administration (FDA) — Oldest federal consumer protection agency (1906); enforces the Food, Drug and Cosmetic Act, enacted in 1938, which authorizes the agency to regulate “adulterated and misbranded” products; sets general standards for products; may require premarket approval (usually for drugs and medical devices). The FDA is responsible for protecting and promoting public health through the regulation and supervision of food safety, tobacco products, dietary supplements, prescription and over-the-counter pharmaceutical drugs, vaccines, biopharmaceuticals, blood transfusions, medical devices, electromagnetic radiation emitting devices, veterinary products, and cosmetics. The Federal Communications Commission (FCC) — an independent U.S. government agency overseen by Congress, regulates interstate communications by radio, television, wire, satellite, and cable. In 2015, the FCC issued its Open Internet rules to protect and maintain open, uninhibited access to legal online content. This rule was upheld in 2016 by a U.S. Court of Appeals. The Gramm-Leach-Bliley Financial Modernization Act (GLB Act) — contains provisions to protect consumers’ per¬sonal financial information held by financial institutions and originally gave authority to eight Federal agencies and the States to administer and enforce its provisions. In 2011, the Dodd-Frank Act transferred GLBA privacy notice rulemaking authority from some of these agencies to the CFPB. The authority to promulgate GLBA privacy rules is vested for (1) depository institutions and many nondepository institutions in the CFPB; (2) securities and futures-related companies in the SEC and the Commodity Futures Trading Commission, respectively; and (3) certain motor vehicle dealers in the FTC. 41-2 CONSUMER PURCHASES Whenever a consumer purchases a product or obtains a service, certain rights and obligations arise. Although a number of consumer protection laws have been enacted in recent years, they still leave large areas of a consumer’s rights and duties to state contract law. In 2012, the American Law Institute began a new project: the Restatement of the Law of Consumer Contracts. This new project focuses on the rules of contract law that treat consumer contracts differently from commercial contracts. It includes regulatory rules that are prominently applied in consumer protection law. The project covers common law as well as statutory and regulatory law. *** Chapter Outcome *** Explain the principal provisions of the Magnuson-Moss Act and distinguish between a full and a limited warranty. 41-2a Federal Warranty Protection The Magnuson-Moss Warranty Act was enacted in 1974 to insure that warranties were made clear and understandable, as well as to insure that sellers back any such guarantees made to the purchaser. The Act applies to consumer products having written warranties. Presale Disclosures — required by the act to prevent confusion and deception and to enable purchasers to make educated product comparisons. Labeling Requirements —For any product costing more than $10, a warranty must be designated as either full or limited on the written warranty itself. A full warranty is a complete guaranty of repair, replacement, or refund and precludes a disclaimer of implied warranties. Limited warranties, however, may restrict implied warranties to a reasonable period of time. Limitations on Disclaimers —Most significantly, the act provides that a full written warranty may not disclaim, modify, or limit any implied warranty; and a limited written warranty may not disclaim or modify any implied warranty but may limit its duration to that of the written warranty. NOTE: See Figure 41-1. 41-2b State “Lemon Laws” These laws attempt to provide new car buyers with rights similar to the full warranties under the Magnuson-Moss Warranty Act. Most provide for the buyer to collect attorney’s fees and expenses if the case must be litigated. Some states also cover used cars and motorcycles. 41-2c Consumer Right of Rescission State consumer protection statutes, FTC regulations, and the Federal Consumer Credit Protection Act permits consumers to seek the remedy of rescission for a period of time after signing a contract in some instances. Door-to-door sales transactions are especially scrutinized by the states and the FTC. The Interstate Land Sales Full Disclosure Act requires the filing of a detailed statement with the Department of Housing and Urban Development if one-hundred or more lots of unimproved land are sold or leased. Under this Act purchasers have a statutory seven day rescission period. NOTE: See Figure 41-2: Consumer Recission Rights. 41-3 CONSUMER CREDIT TRANSACTIONS In 1968, in response to concerns about consumer credit, Congress passed the Federal Consumer Credit Protection Act (FCCPA), which requires creditors to disclose finance charges (including interest and other charges) and credit extension charges, and sets limits on garnishment proceedings. Also in 1968, the National Conference of Commissioners on Uniform State Laws (the group that drafted the Uniform Commercial Code) proposed the Uniform Consumer Credit Code (UCCC), to consolidate the regulation of all consumer credit transactions. 41-3a Access to the Market Businesses that extend credit may not discriminate based on race, color, sex, marital status, religion, national origin, age or receipt of public assistance. (Equal Credit Opportunity Act, 1974). When originally enacted, the ECOA gave the Federal Reserve Board (Fed) responsibility for prescribing the implementing regulation. The Fed issued Regulation B to implement the ECOA. The Dodd-Frank Act transferred rule-making authority under the ECOA to the Consumer Financial Protection Bureau. Applicants must be given objective reasons for a denial of credit. The act allows for actual and punitive damages, plus attorney’s fees. Failure to comply with the Equal Credit Opportunity Act's Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class action suits. Liability for punitive damages can be (1) $10,000 in individual actions and (2) the lesser of $500,000 or 1 percent of the creditor’s net worth in class action suits. The Home Mortgage Disclosure Act (HMDA) was enacted by Congress along with the Community Reinvestment Act (CRA) to outlaw geographic discrimination, or redlining, the process by which financial institutions refuse to provide reasonable home financing terms to qualified applicants whose homes are located in geographic areas of declining value. In1989, Congress adopted a major banking bailout bill, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which included amendments to the HMDA and the CRA. The amendments expanded the disclosure and reporting requirements for all mortgage lenders and mandated that Federal regulating agencies evaluate and rate CRA performance reports. In 2008, Congress enacted the Troubled Asset Relief Program (TARP), a program that purchases assets and equity from financial institutions to strengthen the U.S. financial sector. . As of the end of 2015, cumulative collections under TARP, together with the U.S. Treasury’s additional proceeds from the sale of non-TARP shares of AIG, exceeded total disbursements by more than $12 billion. *** Chapter Outcome *** Describe what information a creditor must provide a consumer before the consumer incurs the obligation. Distinguish between open end and closed end credit. 41-3b Disclosure Requirements The Truth-in-Lending Act (TILA) is part of the FCCPA and provides disclosure requirements for credit sales and consumer loan transactions. As amended by the Dodd-Frank Act, this act has superseded State disclosure requirements relating to credit terms for both consumer loans and credit sales less than $54,600, as adjusted annually for inflation in January 2016.. The act is enforced by the Federal Reserve Board which has issued Regulation Z to meet this obligation. However, as of July 21, 2011, these functions were transferred to the CFPB. The primary subject of disclosure is the cost of credit, and it must be quoted as an annual percentage rate. The Fair Credit and Charge Card Disclosure Act of 1988 adds to the Truth-in-Lending Act a new section requiring all credit and charge card applications and solicitations to include extensive disclosures. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, discussed in Chapter 39, made a number of amendments to the Truth-in-Lending Act. Credit Accounts — A creditor must inform consumers who open revolving or open-end credit accounts about how the finance charge is computed and when it is charged, what other charges may be imposed, and whether the creditor retains or acquires a security interest. In 2000, the Federal Reserve Board published a rule requiring marketing material to display clearly a table that shows the APR and other important information such as the annual fee. The Bankruptcy Act of 2005 further requires a disclosure of any low or discounted introductory rates, how long these rates will apply, and the rates that will take effect upon the termination of the introductory rate. It further requires billing statements to disclose all late payment charges and the date that the payment is due. ARMs — The Adjustable Rate Mortgage (ARM) disclosure rules apply to loans that are (1) closed-end consumer transactions, (2) secured by the consumer’s principal residence, (3) longer than one year in duration, and (4) subject to interest rate variation. Home Equity Loans — A home equity loan is a loan for a fixed amount of money that is secured by the consumer’s home. A home equity line of credit is a revolving line of credit using the consumer’s home as collateral for the loan. Under a line of credit, payments are owed only on the amount actually borrowed, not the full amount available. In 1988 Congress enacted the Home Equity Loan Consumer Protection Act (HELCPA); requires lenders to provide a disclosure statement and consumer pamphlet with an application to a prospective borrower. The disclosure statement must state that (1) a default on the loan may result in consumer’s loss of the dwelling, (2) some conditions must be met, and (3) the creditor, under certain circumstances, may accelerate the balance, prohibit further credit, reduce the credit limit, or impose fees. In addition, the creditor must disclose information about fixed and adjustable interest rates, how they are computed and how they may change, along with an itemization of all fees imposed. When the loan amount exceeds the fair market value of the house, the Bankruptcy Act of 2005 requires the lender to inform a consumer that the amount in excess of the fair market value is not tax deductible for Federal income tax purposes. Billing Errors — In 1975, the Fair Credit Billing Act went into effect; it sets procedures for making complaints about billing errors and requires the creditor to explain or correct such errors. Settlement Charges — In 1974, Congress enacted the Real Estate Settlement Procedures Act (RESPA), which requires advance disclosure to home buyers and sellers of all settlement costs, including attorneys’ fees, credit reports, and title insurance, and prohibits kickbacks and referral fees and limits the amount required for escrow accounts. RESPA was administered and enforced by the secretary of housing and urban development until July 21, 2011, when these functions were transferred to the CFPB. In 2013, the CFPB amended Regulation X (issued under the RESPA) and Regulation Z (issued under the TILA) to implement provisions of the Dodd-Frank Act regarding mortgage loan servicing. In addition, effective August 1, 2015, the CFPB amended Regulation X and Regulation Z to combine certain disclosures that consumers receive in connection with applying for and closing a mortgage loan. Mortgage Disclosure Improvement Act —Enacted in 2008 as an amendment to the TILA, the Mortgage Disclosure Improvement Act (MDIA) seeks to ensure that consumers receive cost disclosures earlier in the mortgage process. The MDIA requires creditors to provide good-faith estimates of mortgage loan costs ("early disclosures") within three business days after receiving a consumer's application for a mortgage loan and before any fees are collected from the consumer, other than a reasonable fee for obtaining the consumer's credit history. In addition, The Fed issued rules implementing the MDIA's requirements that (1) creditors wait seven business days after they provide the early disclosures before closing the loan; and (2) creditors provide new disclosures with a revised APR, and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance. Mortgage Reform and Anti-Predatory Lending Act —One of the many stand-alone statutes included in the Dodd-Frank Act is Mortgage Reform and Anti-Predatory Lending Act of 2010. It sets minimum underwriting standards for mortgages by requiring lenders to verify that consumer-borrowers have a reasonable ability to repay the loan at the time the mortgage is granted. It also prohibits mandatory arbitration clauses and prepayment penalties for ARMs. CASE 41-2 HOUSEHOLD CREDIT SERVICES, INC. v. PFENNIG Supreme Court of the United States, 2004 541 U.S. 232, 124 S. Ct. 1741,158 L.Ed.2d 450 http://scholar.google.com/scholar_case?case=6616956060046722608&q=541+U.S.+232&hl=en&as_sdt=2,10 Thomas, J. [Sharon Pfennig, holds a credit card initially issued by Household Credit Services, Inc. but in which MBNA America Bank, N.A., now holds an interest through the acquisition of Household’s credit card operation. Although the terms of Pfennig’s credit card agreement set her credit limit at $2,000, Pfennig was able to make charges exceeding that limit, subject to a $29 “overlimit fee” for each month in which her balance exceeded $2,000. On August 24, 1999, Pfennig filed a complaint in the U.S. District Court for the Southern District of Ohio on behalf of a purported nationwide class of all consumers who were charged overlimit fees by Household or MBNA (defendants). Pfennig alleged that defendants allowed her and the other members of the class to exceed their credit limits, thereby subjecting them to overlimit fees. Pfennig claims the defendants violated the Truth-in-Lending Act (TILA) by failing to classify the overlimit fees as “finance charges” and thereby “misrepresented the true cost of credit.” Defendants moved to dismiss the complaint on the ground that Regulation Z specifically excludes overlimit fees from the definition of “finance charge.” The district court granted petitioners’ motion to dismiss. On appeal, Pfennig argued, and the Court of Appeals agreed, that Regulation Z’s explicit exclusion of overlimit fees from the definition of “finance charge” conflicts with the TILA.] TILA itself does not explicitly address whether over-limit fees are included within the definition of “finance charge.” Congress defined “finance charge” as “all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.” § 1605(a). * * * Because petitioners would not have imposed the over-limit fee had they not “granted [respondent’s] request for additional credit, which resulted in her exceeding her credit limit,” the Court of Appeals held that the over-limit fee in this case fell squarely within § 1605(a)’s definition of “finance charge.” * * * The Court of Appeals’ characterization of the transaction in this case, however, is not supported even by the facts as set forth in respondent’s complaint. Respondent alleged in her complaint that the over-limit fee is imposed for each month in which her balance exceeds the original credit limit. If this were true, however, the over-limit fee would be imposed not as a direct result of an extension of credit for a purchase that caused respondent to exceed her $2,000 limit, but rather as a result of the fact that her charges exceeded her $2,000 limit at the time respondent’s monthly charges were officially calculated. Because over-limit fees, regardless of a creditor’s particular billing practices, are imposed only when a consumer exceeds his credit limit, it is perfectly reasonable to characterize an over-limit fee not as a charge imposed for obtaining an extension of credit over a consumer’s credit limit, but rather as a penalty for violating the credit agreement. * * * Moreover, an examination of TILA’s related provisions, as well as the full text of § 1605 itself, casts doubt on the Court of Appeals’ interpretation of the statute. A consumer holding an open-end credit plan may incur two types of charges—finance charges and “other charges which may be imposed as part of the plan.” [Citation]. TILA does not make clear which charges fall into each category. But TILA’s recognition of at least two categories of charges does make clear that Congress did not contemplate that all charges made in connection with an open-end credit plan would be considered “finance charges.” And where TILA does explicitly address over-limit fees, it defines them as fees imposed “in connection with an extension of credit,” rather than “incident to the extension of credit,” § 1605(a). * * * * * * Regulation Z’s exclusion of over-limit fees from the term “finance charge” is in no way manifestly contrary to § 1605. Regulation Z defines the term “finance charge” as “the cost of consumer credit.” [Citation]. * * * Because over-limit fees, which are imposed only when a consumer breaches the terms of his credit agreement, can reasonably be characterized as a penalty for defaulting on the credit agreement, the Board’s decision to exclude them from the term “finance charge” is surely reasonable. * * * The judgment of the Court of Appeals is therefore reversed. 41-3c Contract Terms Creditors in consumer loans often use standardized documents with blank spaces to accommodate the negotiated contractual details; facilitates transfer of the creditor’s rights to a bank or finance company. Most states impose limits on fees and interest rates for consumer credit, and usually require a creditor to permit the debtor to pay off the debt early and receive a refund of any unearned interest already paid. The Fair Credit Billing Act preserves a consumer’s defense against the issuer (provided the consumer has made a good faith attempt to resolve the dispute with the seller), but only if (1) the seller is controlled by the card issuer or is under common control with the issuer, (2) the issuer has included the seller’s promotional literature in the monthly billing statements sent to the card holder, or (3) the sale involves more than $50 and the consumer’s billing address is in the same state as, or within one hundred miles of, the seller’s place of business. 41-3d Consumer Credit Card Fraud The Credit Card Fraud Act, enacted in 1984, makes it illegal to: (1) possess unauthorized cards, (2) counterfeit or alter credit cards, (3) use account numbers alone, and (4) use cards obtained from a third party with his consent, even if the third party conspires to report the cards as stolen. The FCCPA, under certain conditions, protects the card holder from loss by limiting to $50 his liability for another’s unauthorized use of the holder’s card. 41-3e Fair Credit Reportage The Fair Credit Reporting Act (FRCA), enacted in 1970, prohibits the inclusion of inaccurate or obsolete information in a consumer credit report. Consumers have a right to ask for information regarding the source of any material in the report and a listing of those receiving reports during the past two years for employment purposes, or for the past six months if received for some other reason. Consumer objections concerning the substance of a report must be investigated; inaccurate information promptly deleted; for unresolved disputes, the consumer may write a brief explanation. A 1997 amendment requires an employer to notify a job applicant or current employee that a report may be used and must obtain the applicant’s consent prior to request the report. In addition, the employer must provide the individual with a disclosure of information found before taking any adverse actions based on the information in the report. A recent amendment to the FCRA requires each of the nationwide consumer reporting companies to provide upon an individual’s request a free copy of her credit report once every twelve months. Beginning January 1, 2013, the responsibility of interpreting and enforcing requirements under the FCRA shifted from the FTC to the CFPB. CASE 41-3 FREEMAN v. QUICKEN LOANS, INC. Supreme Court of the United States, 2012 566 U.S._____, 132 S.CT. 2034, 182 L. Ed. 2d 955 http://scholar.google.com/scholar_case?q=Freeman+v.+Quicken+Loans,+Inc.&hl=en&as_sdt=2,34&case=4151408096144071625&scilh=0 Scalia, J. [The Freemans, Bennetts, and Smiths (petitioners) are three married couples who obtained mortgage loans from respondent Quicken Loans, Inc. In 2008, they filed separate actions alleging that the respondent had violated a provision of the Real Estate Settlement Procedures Act (RESPA) by charging them fees for which no services were provided. In particular, the Freemans and Bennetts allege that they were charged loan discount fees of $980 and $1,100, respectively, but that the respondent did not give them lower interest rates in return. The Smiths' allegations focus on a $575 loan "processing fee" and a "loan origination" fee of more than $5,100. The District Court granted summary judgment in favor of respondent because the petitioners did not allege any splitting of fees. A divided panel of the United States Court of Appeals for the Fifth Circuit affirmed. The U.S. Supreme Court granted certiorari. ] Enacted in 1974, RESPA regulates the market for real estate "settlement services," a term defined by statute to include "any service provided in connection with a real estate settlement," such as "title searches, . . . title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, . . . services rendered by a real estate agent or broker, the origination of a federally related mortgage loan . . ., and the handling of the processing, and closing or settlement." [Citation.] Among RESPA's consumer-protection provisions is [citation], which directly furthers Congress's stated goal of "eliminat[ing]. . . kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services," [citation.] * * * [Section 2607], subsection (b), adds the following: No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. These substantive provisions are enforceable through * * * actions for damages brought by consumers of settlement services against "[a]ny person or persons who violate the prohibitions or limitations" of §2607, with recovery set at an amount equal to three times the charge paid by the plaintiff for the settlement service at issue. §2607(d)(2). * * * The question in this case pertains to the scope of §2607(b), which as we have said provides that "[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed." The dispute between the parties boils down to whether this provision prohibits the collection of an unearned charge by a single settlement-service provider—what we might call an undivided unearned fee—or whether it covers only transactions in which a provider shares a part of a settlement-service charge with one or more other persons who did nothing to earn that part. * * * By providing that no person "shall give" or "shall accept" a "portion, split, or percentage" of a "charge" that has been "made or received," "other than for services actually performed," §2607(b) clearly describes two distinct exchanges. First, a "charge" is "made" to or "received" from a consumer by a settlement-service provider. That provider then "give[s]," and another person "accept[s]," a "portion, split, or percentage" of the charge. Congress's use of different sets of verbs, with distinct tenses, to distinguish between the consumer-provider transaction (the "charge" that is "made or received") and the fee-sharing transaction (the "portion, split, or percentage" that is "give[n]" or "accept[ed]") would be pointless if, as petitioners contend, the two transactions could be collapsed into one. Petitioners try to merge the two stages by arguing that a settlement-service provider can "make" a charge (stage one) and then "accept" (stage two) the portion of the charge consisting of 100 percent. But then is not the provider also "receiv[ing]" the charge at the same time he is "accept[ing]" the portion of it? And who "give[s]" the portion of the charge consisting of 100 percent? The same provider who "accept[s]" it? This reading does not avoid collapsing the sequential relationship of the two stages, and it would simply destroy the tandem character of activities that the text envisions at stage two (i.e., a giving and accepting). Petitioners seek to avoid this consequence, at stage two at least, by saying that the consumer is the person who "give[s]" a "portion, split, or percentage" of the charge to the provider who "accept[s]" it. [Citation.] But since under this statute it is (so to speak) as accursed to give as to receive, this would make lawbreakers of consumers—the very class for whose benefit §2607(b) was enacted, [citation.] * * * The phrase "portion, split, or percentage" reinforces the conclusion that §2607(b) does not cover a situation in which a settlement-service provider retains the entirety of a fee received from a consumer. It is certainly true that "portion" or "percentage" can be used to include the entirety, or 100 percent. [Citations.] But that is not the normal meaning of "portion" when one speaks of "giv[ing]" or "accept[ing]" a portion of the whole, as dictionary definitions uniformly show. * * * As for "percentage," that word can include 100 percent—or even 300 percent—when it refers to merely a ratable measure ("unemployment claims were up 300 percent"). But, like "portion," it normally means less than all when referring to a "percentage" of a specific whole ("he demanded a percentage of the profits"). And it is normal usage that, in the absence of contrary indication, governs our interpretation of texts. [Citation.] In the present statute, that meaning is confirmed by the "commonsense canon of noscitur a sociis—which counsels that a word is given more precise content by the neighboring words with which it is associated." [Citation.] For "portion" and "percentage" do not stand in isolation, but are part of a phrase in which they are joined together by the intervening word "split"—which, as petitioners acknowledge, [citation], cannot possibly mean the entirety. We think it clear that, in employing the phrase "portion, split, or percentage," Congress sought to invoke the words' common "core of meaning," [citation], which is to say, a part of a whole. * * * * * * In order to establish a violation of §2607(b), a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons. Because petitioners do not contend that respondent split the challenged charges with anyone else, summary judgment was properly granted in favor of respondent. * * * We therefore affirm the judgment of the Court of Appeals. 41-3f Credit Card Bill of Rights On May 22, 2009, President Obama signed into law the Credit Card Accountability, Responsibility, and Disclosure Act (also known as the Credit Card Bill of Rights or CARD). The 2009 Act amends the TILA to establish fair and transparent practices relating to credit cards. The Act delegates regulation to The Fed. The Fed has issued regulations in three stages, the latest in June 2010. These regulations include— 1. Credit card issuers generally cannot raise interest rates, or any fees, during the first year an account is open, except when a variable rate changes, a promotional rate ends, or a required minimum payment is more than sixty days late. 2. After the first year, forty-five days’ advance notice is required to (a) raise the interest rate on future purchases; (b) make certain changes in terms, such as increased annual fees, cash advance fees, and late fees; and (c) increase the minimum payment. 3. If a credit card issuer lawfully imposes a rate increase on a customer, the rate must be restored to the prior rate if the customer pays the minimum balance on time for the next six months. 4. Credit card issuers are prohibited from giving credit cards to a full-time college student under twenty-one years of age unless that student can prove that she has the means to pay or a parent or guardian cosigns for the card. 5. Credit card issuers may not raise the credit limit on accounts held by a college student under twenty-one and a cosigner without written permission from the cosigner. 6. Credit card agreements must be posted online and no fees can be charged to make a payment online, by phone, mail, or any other means. 7. Credit card issuers must mail account statements twenty-one days prior to the payment due date. 8. Credit card issuers must apply payments received to the balance with the highest interest rate first. 9. If the credit card issuer receives payment by 5:00 p.m. on the due date, the payment must be considered on time. 10. Credit card issuers must obtain the customer’s permission before allowing the customer to spend more than the credit limit. 11. Cardholders cannot be charged over-limit fees unless they give express permission (“opt in”) to the card issuer to approve transactions that exceed their credit limits. 12. First year fees required to open a credit card account cannot total more than 25 percent of the initial credit limit. This restriction applies to annual fees, application fees, and processing fees, but not to penalty fees, such as penalties for late payments. 13. If the account is closed or cancelled by the consumer, the closed account will not be considered in default and the card issuer cannot require immediate repayment of the entire balance. Issuers also cannot charge monthly maintenance fees on closed accounts. 14. Penalty fees, such as late fees and over-limit fees must be “reasonable and proportional to the omission or violation” of the card agreement. 15. Gift cards or certificates may not expire sooner than five years after issuance. 16. Ads that make promotional offers for free credit reports must state that free credit reports are available under Federal law at AnnualCreditReport.com. The disclosure must read: “You have the right to a free credit report from AnnualCreditReport.com or 877-322-8228, the ONLY authorized source under federal law.” *** Chapter Outcome *** Outline the major remedies that are available to a creditor. 41-4 CREDITORS’ REMEDIES On a debtor’s default the creditor can accelerate the debt and sue for the entire unpaid balance. If a scheduled payment on the debt is merely delinquent, the creditor can impose a late charge. 41-4a Wage Assignments and Garnishment Wage assignments are not allowed in some states, and consequently, creditors will have to initiate a garnishment action available only in a court proceeding; there is usually a limitation on the amount that may be deducted from each paycheck. 41-4b Security Interests in Goods Where the creditor has a security interest in the goods he may seek repossession, however, the UCC does impose some restrictions on whether the creditor may retain the goods as satisfaction for the debt. If 60% of the price or loan has been paid by the consumer the creditor must sell the collateral. 41-4c Debt Collection Practices To curb deceptive and unfair collection procedures Congress passed the Fair Debt Collection Practices Act (FDCPA). Harassing or oppressive conduct, communication at odd hours, and misleading representations are prohibited, as well as communication with the consumer if she is represented by an attorney. As of July 21, 2011, administration of FDCPA was transferred from the FTC to the CFPB. Both the CFPB and the FTC have law enforcement powers under the FDCPA. Moreover, the Dodd-Frank Act and Section 5 of the FTC Act prohibit creditors from engaging in unfair, deceptive or abusive practices in their own collection activity. CASE 41-4 JERMAN v. CARLISLE, MCNELLIE, RINI, KRAMER & ULRICH LPA United States Supreme Court, 2010 559 U.S. 573, 130 S.Ct. 1605, 176 L. Ed. 2d 519 http://scholar.google.com/scholar_case?q=130+S.Ct.+1605&hl=en&as_sdt=2,34&case=10408914555667566662&scilh=0 Sotomayor, J. The Fair Debt Collection Practices Act (FDCPA or Act) imposes civil liability on “debt collector[s]” for certain prohibited debt collection practices. Section 813(c) of the Act, [citation], provides that a debt collector is not liable in an action brought under the Act if she can show “the violation was not intentional and resulted from a bona fide error not-withstanding the maintenance of procedures reasonably adapted to avoid any such error.” * * * I A Congress enacted the FDCPA in 1977, [citation], to eliminate abusive debt collection practices, to ensure that debt collectors who abstain from such practices are not competitively disadvantaged, and to promote consistent state action to protect consumers. [Citation.] The Act regulates interactions between consumer debtors and “debt collector[s],” defined to include any person who “regularly collects … debts owed or due or asserted to be owed or due another.” [Citation]. Among other things, the Act prohibits debt collectors from making false representations as to a debt’s character, amount, or legal status, [citation]; communicating with consumers at an “unusual time or place” likely to be inconvenient to the consumer, [citation]; or using obscene or profane language or violence or the threat thereof. [Citations.] The Act is enforced through administrative action and private lawsuits. With some exceptions not relevant here, violations of the FDCPA are deemed to be unfair or deceptive acts or practices under the Federal Trade Commission Act (FTC Act), [citation], and are enforced by the Federal Trade Commission (FTC). [Citation.] As a result, a debt collector who acts with “actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is [prohibited under the FDCPA]” is subject to civil penalties of up to $16,000 per day. [Citation.] The FDCPA also provides that “any debt collector who fails to comply with any provision of th[e] [Act] with respect to any person is liable to such person.” [Citation.] Successful plaintiffs are entitled to “actual damage[s],” plus costs and “a reasonable attorney’s fee as determined by the court.” [Citation.] A court may also award “additional damages,” subject to a statutory cap of $1,000 for individual actions, or, for class actions, “the lesser of $500,000 or 1 per centum of the net worth of the debt collector.” [Citation.] In awarding additional damages, the court must consider “the frequency and persistence of [the debt collector’s] noncompliance,” “the nature of such noncompliance,” and “the extent to which such noncompliance was intentional.” [Citation.] The Act contains two exceptions to provisions imposing liability on debt collectors. Section 1692k(c), at issue here, provides that [a] debt collector may not be held liable in any action brought under [the FDCPA] if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. The Act also states that none of its provisions imposing liability shall apply to “any act done or omitted in good faith in conformity with any advisory opinion of the [Federal Trade] Commission.” [Citation.] B Respondents in this case are a law firm, Carlisle, McNellie, Rini, Kramer & Ulrich, L. P. A., and one of its attorneys, Adrienne S. Foster (collectively Carlisle). In April 2006, Carlisle filed a complaint in Ohio state court on behalf of a client, Countrywide Home Loans, Inc. Carlisle sought foreclosure of a mortgage held by Countrywide in real property owned by petitioner Karen L. Jerman. The complaint included a “Notice,” later served on Jerman, stating that the mortgage debt would be assumed to be valid unless Jerman disputed it in writing. Jerman’s lawyer sent a letter disputing the debt, and Carlisle sought verification from Countrywide. When Countrywide acknowledged that Jerman had, in fact, already paid the debt in full, Carlisle withdrew the foreclosure lawsuit. Jerman then filed her own lawsuit seeking class certification and damages under the FDCPA, contending that Carlisle violated §1692g by stating that her debt would be assumed valid unless she disputed it in writing. While acknowledging a division of authority on the question, the District Court held that Carlisle had violated §1692g by requiring Jerman to dispute the debt in writing. [Citation.] The court ultimately granted summary judgment to Carlisle, however, concluding that §1692k(c) shielded it from liability because the violation was not intentional, resulted from a bona fide error, and occurred despite the maintenance of procedures reasonably adapted to avoid any such error. [Citation.] The Court of Appeals for the Sixth Circuit affirmed. * * *, the court observed that Congress has amended the FDCPA several times since 1977 without excluding mistakes of law from §1692k(c). [Citation.] We granted certiorari * * *. II A The parties disagree about whether a “violation” resulting from a debt collector’s misinterpretation of the legal requirements of the FDCPA can ever be “not intentional” under §1692k(c). Jerman contends that when a debt collector intentionally commits the act giving rise to the violation (here, sending a notice that included the “in writing” language), a misunderstanding about what the Act requires cannot render the violation “not intentional,” given the general rule that mistake or ignorance of law is no defense. Carlisle * * *, in contrast, argue that nothing in the statutory text excludes legal errors from the category of “bona fide error[s]” covered by §1692k(c) and note that the Act refers not to an unintentional “act” but rather an unintentional “violation.” The latter term, they contend, evinces Congress’ intent to impose liability only when a party knows its conduct is unlawful. Carlisle urges us, therefore, to read §1692k(c) to encompass “all types of error,” including mistakes of law. [Citation.] We decline to adopt the expansive reading of §1692k(c) that Carlisle proposes. We have long recognized the “common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.” [Citations.] * * * We draw additional support for the conclusion that bona fide errors in §1692k(c) do not include mistaken interpretations of the FDCPA, from the requirement that a debt collector maintain “procedures reasonably adapted to avoid any such error.” * * * In that light, the statutory phrase is more naturally read to apply to processes that have mechanical or other such “regular orderly” steps to avoid mistakes—for instance, the kind of internal controls a debt collector might adopt to ensure its employees do not communicate with consumers at the wrong time of day, §1692c(a)(1), or make false representations as to the amount of a debt, §1692e(2). * * * But legal reasoning is not a mechanical or strictly linear process. For this reason, we find force in the suggestion by the Government (as amicus curiae supporting Jerman) that the broad statutory requirement of procedures reasonably designed to avoid “any” bona fide error indicates that the relevant procedures are ones that help to avoid errors like clerical or factual mistakes. Such procedures are more likely to avoid error than those applicable to legal reasoning, particularly in the context of a comprehensive and complex federal statute such as the FDCPA that imposes open ended prohibitions on, inter alia, “false, deceptive,” §1692e, or “unfair” practices, §1692f. Even if the text of §1692k(c), read in isolation, leaves room for doubt, the context and history of the FDCPA provide further reinforcement for construing that provision not to shield violations resulting from misinterpretations of the requirements of the Act. [Citation.] In our view, the Court of Appeals’ reading is at odds with the role Congress evidently contemplated for the FTC in resolving ambiguities in the Act. Debt collectors would rarely need to consult the FTC if §1692k(c) were read to offer immunity for good-faith reliance on advice from private counsel. Indeed, debt collectors might have an affirmative incentive not to seek an advisory opinion to resolve ambiguity in the law, as receipt of such advice would prevent them from claiming good-faith immunity for violations and would potentially trigger civil penalties for knowing violations under the FTC Act. More importantly, the existence of a separate provision that, by its plain terms, is more obviously tailored to the concern at issue (excusing civil liability when the Act’s prohibitions are uncertain) weighs against stretching the language of the bona fide error defense to accommodate Carlisle’s expansive reading. * * * B Carlisle, its amici, and the dissent raise the additional concern that our reading will have unworkable practical consequences for debt collecting lawyers. [Citations.] Carlisle claims the FDCPA’s private enforcement provisions have fostered a “cottage industry” of professional plaintiffs who sue debt collectors for trivial violations of the Act. [Citation.] If debt collecting attorneys can be held personally liable for their reasonable misinterpretations of the requirements of the Act, Carlisle and its amici foresee a flood of lawsuits against creditors’ lawyers by plaintiffs (and their attorneys) seeking damages and attorney’s fees. The threat of such liability, in the dissent’s view, creates an irreconcilable conflict between an attorney’s personal financial interest and her ethical obligation of zealous advocacy on behalf of a client: An attorney uncertain about what the FDCPA requires must choose between, on the one hand, exposing herself to liability and, on the other, resolving the legal ambiguity against her client’s interest or advising the client to settle—even where there is substantial legal authority for a position favoring the client. [Citation.] We do not believe our holding today portends such grave consequences. For one, the FDCPA contains several provisions that expressly guard against abusive lawsuits, thereby mitigating the financial risk to creditors’ attorneys. When an alleged violation is trivial, the “actual damage[s]” sustained, §1692k(a)(1), will likely be de minimis or even zero. The Act sets a cap on “additional” damages, §1692k(a)(2), and vests courts with discretion to adjust such damages where a violation is based on a good faith error, §1692k(b). * * * * * * To the extent the FDCPA imposes some constraints on a lawyer’s advocacy on behalf of a client, it is hardly unique in our law. * * * For the reasons discussed above, the judgment of the United States Court of Appeals for the Sixth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion. It is so ordered. Instructor Manual for Smith and Robersons Business Law Richard A. Mann, Barry S. Roberts 9781337094757, 9780357364000, 9780538473637
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