Justia Consumer Law Opinion Summaries

Articles Posted in US Court of Appeals for the Seventh Circuit
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Heredia received four collection letters from CMS, a collections firm, and claims that the language in this correspondence violated the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692(e). The Seventh Circuit reversed the dismissal of the case, finding that Heredia has plausibly alleged that the dunning letter violated the FDCPA. The letters, which proposed a payment plan, stated: “Discover may file a 1099C form” and that “[s]ettling a debt for less than the balance owed may have tax consequences.” Language in a dunning letter violates section 1692e if the creditor used false, deceptive, or misleading representation or means in connection with the collection of debt. Under section 1692f, a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Although it is not technically illegal or impossible for Discover to file a 1099C form with the IRS if the amount is under $600, “a collection letter can be literally true” and still misleading. The defendants do not dispute that Discover would never file a 1099C form unless required to do so by law (forgiving $600 or more of principal). In the case of the Heredia letter, Discover would never file a 1099C form because in no circumstances would Discover be forgiving at least $600 in principal. View "Heredia v. Capital Management Services, L.P." on Justia Law

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Plaintiffs contracted to sell their condominiums. The Illinois Condominium Property Act requires an owner to give the prospective buyer a copy of the condominium declaration and bylaws, the condominium association’s rules, and other documents. The association’s board must furnish the required documents within 30 days of the owner’s written request; it may charge a reasonable fee. Sudler, which managed plaintiffs' buildings under contracts with the condominium associations, contracted with HomeWiseDocs.com, which assembles the required disclosure documents as PDFs, giving condominium owners almost instantaneous electronic access to the material needed to close a resale transaction. HomeWise charged plaintiffs $240 and $365 for PDFs of the disclosure documents. Plaintiffs filed a proposed class action, alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices and Condominium Acts; aiding and abetting a breach of fiduciary duty; civil conspiracy; and unjust enrichment. The Seventh Circuit affirmed the dismissal of the suit. The Condominium Act does not provide a private right of action, and there is no basis in Illinois law to imply one. Illinois courts have held that charging too much for goods or services is not, alone, an unfair practice under the consumer fraud statute. The complaint does not plead an actionable breach of fiduciary duty, and unjust enrichment and conspiracy are not independent causes of action under Illinois law. View "Horist v. Sudler & Co." on Justia Law

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Delta, a collection agency, sent Koehn a letter stating that the “current balance” of Koehn’s debt was $2,034.03. Koehn claimed the letter was misleading under the Fair Debt Collection Practices Act, 15 U.S.C. 1692 because the phrase “current balance” implied that her balance could grow, even though her account was “static.” Additional interest and fees could no longer be added to the balance. The statute requires a debt collector to state “the amount of the debt,” and section 1692e prohibits more generally “any false, deceptive, or misleading representation or means.” The Seventh Circuit affirmed dismissal. To state a legally viable claim, Koehn needed to allege plausibly that Delta’s use of the “current balance” phrase “would materially mislead or confuse an unsophisticated consumer.” An unsophisticated consumer is “uninformed, naïve, or trusting,” but nonetheless possesses “reasonable intelligence,” basic knowledge about the financial world, and “is wise enough to read collection notices with added care.” There is nothing inherently misleading in the phrase “current balance.” Delta’s letter contained no directive to call for a “current balance,” nor does it include any language implying that “current balance” means anything other than the balance owed. “The Act is not violated by a dunning letter that is susceptible of an ingenious misreading.” View "Koehn v. Delta Outsource Group, Inc/" on Justia Law

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Brown is the sole owner and operator of a credit-monitoring service. Brown’s websites used a “negative option feature” to attract customers, offering a “free credit report and score” while obscuring in much smaller text that applying for this “free” information automatically enrolled customers in a $29.94 monthly “membership” subscription for Brown’s credit-monitoring service. Customers learned this information only when he sent them a letter after they were automatically enrolled. Brown’s most successful contractor capitalized on the confusion by posting Craigslist advertisements for fake rental properties and telling applicants to get a “free” credit score from Brown’s websites. The FRC sued Brown under the Federal Trade Commission Act, 15 U.S.C. 53(b). The district judge found that Brown was a principal for his contractor’s fraudulent scheme and that the websites failed to meet certain disclosure requirements in the Restore Online Shopper Confidence Act (ROSCA), 15 U.S.C. 8403. The judge entered a permanent injunction and ordered Brown to pay more than $5 million in restitution to the Commission. The Seventh Circuit affirmed as to liability and the issuance of a permanent injunction but, overruling precedent, vacated the restitution award. Section 13(b) authorizes only restraining orders and injunctions. The FTCA has two detailed remedial provisions that expressly authorize restitution if the Commission follows certain procedures. Adherence yp stare decisis should not allow the Commission to circumvent these elaborate enforcement provisions. View "Federal Trade Commission v. Credit Bureau Center, LLC" on Justia Law

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Plaintiffs own cats with health problems. Their veterinarians prescribed Hill’s cat food. They purchased this higher-priced cat food from PetSmart stores using their veterinarian’s prescriptions before learning that the Prescription Diet cat food is not materially different from non-prescription cat food and no prescription is necessary. Plaintiffs filed a class-action lawsuit under the Illinois Consumer Fraud and Deceptive Business Practices Act. The district judge dismissed the claim as lacking the specificity required for a fraud claim and barred by a statutory safe harbor for conduct specifically authorized by a regulatory body (the FDA). The Seventh Circuit reversed. The safe-harbor provision does not apply. Under the Food, Drug, and Cosmetic Act, 21 U.S.C. 301, pet food intended to treat or prevent disease and marketed as such is considered a drug and requires FDA approval. Without FDA approval, the manufacturer may not sell it in interstate commerce and the product is deemed adulterated and misbranded. FDA guidance recognizes that most pet-food products in this category do not have the required approval and states that it is less likely to initiate an enforcement action if consumers purchase the food through or under the direction of a veterinarian (among other factors). The guidance does not specifically authorize the conduct alleged here, so the safe harbor does not apply. Plaintiffs pleaded the fraud claim with the particularity required by FRCP 9(b). View "Vanzant v. Hill's Pet Nutrition, Inc." on Justia Law

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Attorney Kohn, on behalf of Unifund, filed suit against Burton in Brown County, Wisconsin for failure to make payments on a Citibank credit agreement. In his answer, Burton stated, “I have never had any association with Unifund ... and do not know who you are or what you are talking about, so I strongly dispute this debt.” He asserted counterclaims, alleging that his personal information had been compromised; that Unifund had failed to provide him notice of his right to cure the default before filing suit; and that there was a “Lack of Privity” because he “ha[d] never entered into any contractual or debtor/creditor arrangements” with Unifund. While that action was pending, Burton sued in federal district court, citing the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692–1692p, and the Wisconsin Consumer Act (WCA). The state court dismissed Kohn’s action against Burton on the basis of Burton’s denial that he was the individual who had incurred the underlying debt. The Seventh Circuit affirmed a judgment in favor of Kohn and Unifund, finding that the FDCPA or WCA claims could not proceed because Burton failed to present sufficient evidence that the debt incurred on the Citibank account was for personal, family, or household purposes and therefore a “consumer debt.” View "Burton v. Kohn Law Firm, S.C." on Justia Law

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Debt collector Med-1 attempted to recover unpaid medical bills from Lavallee. The Fair Debt Collection Practices Act required Med-1 to disclose certain information to Lavallee, 15 U.S.C. 1692g(a), by including the required information in its “initial communication” with Lavallee or by sending “a written notice containing” the disclosures within five days after that “initial communication.” In March and April, Med-1 sent Lavallee two emails, one for each debt. The emails contained hyperlinks to a Med-1’s web server; a visitor had to click through multiple screens to access and download a .pdf document containing the required disclosures. Lavallee never opened those emails. When the hospital called her to discuss a different medical debt, she learned about the earlier debts and was told that they had been referred to Med-1. She called Med-1, but Med-1 did not provide the required disclosures. Nor did it send a written notice within the next five days. Lavallee sued Med-1. The Seventh Circuit affirmed summary judgment in favor of Lavallee, rejecting Med-1’s contention that its emails were initial communications that contained the required disclosures. The emails do not qualify as “communication” because they did not “convey[] … information regarding a debt” and did not “contain” the mandated disclosures. At most the emails provided a means to access the disclosures via a multistep online process. View "Lavallee v. Med-1 Solutions, LLC" on Justia Law

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Bernal bought a monthly pass to Six Flags amusement parks. The contract said that if he fell behind on his payments, he would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due.” After Bernal missed several monthly payments, Six Flags hired AR, a debt collector. Under their contract, AR could charge Six Flags a 5% management fee plus an additional amount based on the number of days the debt was delinquent (in this case, an additional 20%), as is common in the market. AR hired NRA, a subcontractor, which sent Bernal a collection letter asking for the $267.31 he owed, plus $43.28 in costs. Reasoning that it could not have cost $43.28 to mail a single collection letter, Bernal filed a class-action lawsuit under the Fair Debt Collection Practices Act, alleging that NRA charged a fee not “expressly authorized by the agreement creating the debt,” 15 U.S.C. 1692f(1). The Seventh Circuit affirmed a judgment for NRA. A debt collector’s fee counts as a collection cost under that language. The contract unambiguously permits Six Flags to recover any cost it incurs in collecting past-due payments, and that includes a standard collection fee. View "Bernal v. NRA Group, LLC" on Justia Law

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GL services repayment of Nelson's federally-insured student loans. On its website, GL tells borrowers struggling to make their loan payments: “Our trained experts work on your behalf,” and “You don’t have to pay for student loan services or advice,” because “Our expert representatives have access to your latest student loan information and understand all of your options.” Nelson alleged that when she and other members of the putative class struggled to make payments, GL steered borrowers into repayment plans that were to its advantage and to borrowers’ detriment. She alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, constructive fraud, and negligent misrepresentation. The district court dismissed the claims as preempted by a federal Higher Education Act provision: “Loans made, insured, or guaranteed pursuant to a program authorized by ... the Higher Education Act ... shall not be subject to any disclosure requirements of any State Law,” 20 U.S.C. 1098g. The Seventh Circuit vacated. When a loan servicer holds itself out as having experts who work for borrowers, tells borrowers that they need not look elsewhere for advice, and tells them that its experts know what options are in their best interest, those statements, when untrue, are not mere failures to disclose information but are affirmative misrepresentations. A borrower who reasonably relied on them to her detriment is not barred from bringing state‐law consumer protection and tort claims. View "Nelson v. Great Lakes Educational Loan Services, Inc." on Justia Law

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Simm, a debt collection agency, sent plaintiffs collection letters, stating: CLIENT: PAYPAL CREDIT ORIGINAL CREDITOR: Comenity Capital Bank; giving the balance and origination date; and stating that, upon the debtor’s request, Simm will provide “the name and address of the original creditor, if different from the current creditor.” Plaintiffs filed purported class actions (consolidated on appeal) under the Fair Debt Collection Practices Act (FDCPA), alleging Simm violated 15 U.S.C. 1692g(a)(2) by failing to disclose the current creditor or owner of the debt and that the letter was false, deceptive, or misleading. The court granted Simm summary judgment. The Seventh Circuit affirmed. The letter identifies a single “creditor,” as well as the commercial name to which the debtors had been exposed, allowing the debtors to easily recognize the nature of the debt. It is true the letter identifies Comenity as the “original” instead of “current” creditor but the FDCPA does not require the use of any specific terminology to identify the creditor. The letter does not identify any creditor other than Comenity, which might have led to consumer confusion. By informing debtors they could request the name of the original creditor if different from the current creditor, the letter alerts debtors the original and current creditor may be the same. View "Nieto v. Simm Associates, Inc." on Justia Law