Seyfarth Synopsis: In Spokeo, Inc. v. Robins, the U.S. Supreme Court held that a plaintiff must have a concrete injury to sue for FCRA violations. Following Spokeo’s remand, courts have held that consumers have standing to sue if their reports are inaccurate even if an inaccuracy did not adversely affect them.

In Spokeo, the U.S. Supreme Court reaffirmed that plaintiffs seeking to sue in federal court must have a concrete, actual injury; a mere statutory violation is not enough. The U.S. Supreme Court remanded the case for the Ninth Circuit to determine whether the plaintiff had alleged a concrete injury. (See our prior posts here, here, here, and here for a summary of the case background and a more detailed explanation of the U.S. Supreme Court’s ruling.)

The Ninth Circuit’s Ruling on Remand

On remand, in Robins v. Spokeo, Inc., the Ninth Circuit concluded that the plaintiff had sufficiently pled a concrete injury in fact and thus had standing to proceed with his FCRA claims. The court stated that, although a plaintiff may not show an injury-in-fact merely by pointing to a statutory violation, “some statutory violations, alone, do establish concrete harm.” To determine whether a statutory violation is itself a concrete injury, the court created a two-part test that asks (1) whether the statutory provision at issue was established to protect the consumer’s concrete interests (as opposed to purely procedural rights), and, if yes, (2) whether the specific procedural violation alleged actually harmed or presented a material risk of harm to those interests.

On the first question, the Ninth Circuit noted that the plaintiff had alleged a violation of the FCRA’s requirement that a consumer reporting agency have reasonable procedures in place to ensure the maximum possible accuracy in reporting. The court concluded that this provision “protect[s] consumers’ concrete interests” in accurate reporting and consumer privacy and that these interests are “‘real’ rather than purely legal creations.” The court reasoned that “given the ubiquity and importance of consumer reports in modern life—in employment decisions, in loan applications, in home purchases, and much more—the real-world implications of material inaccuracies in those reports seem patent on their face.” The court also noted that “the interests that FCRA protects also resemble other reputational and privacy interests that have long been protected in the law.”

As to the second question, the Ninth Circuit stated that it required an “examination of the nature of the specific alleged reporting inaccuracies to ensure that they raise a real risk of harm to the concrete interests that the FCRA protects.” The court concluded that, while a benign inaccuracy may not be harmful, the plaintiff had raised a real risk of harm by alleging that the defendant had inaccurately reported that he was married, had children, was in his 50’s, was employed, had a graduate degree, and was financially stable. The court reasoned that this information “is the type that may be important to employers or others making use of a consumer report.”

The Ninth Circuit held that whether an employer or other end user considered the inaccurate information was irrelevant. Although the defendant argued that the plaintiff must show that the information actually harmed his employment prospects or presented a material or impending risk of doing so, the court disagreed. In the court’s view, “[t]he threat to a consumer’s livelihood is caused by the very existence of inaccurate information in his credit report and the likelihood that such information will be important to one of the many entities who make use of such reports.” Thus, a materially inaccurate report is itself a concrete injury.

Although the Ninth Circuit spoke of harm and materiality, the crux of the opinion appears to be that any inaccuracy will provide standing if it involves information that a user of a report may consider even if no one ever does consider it. And that is how one court recently interpreted the ruling.

In Alame v. Mergers Marketing, a judge in the Western District of Missouri held that a plaintiff had standing to sue because he alleged that the defendant’s reporting made it appear that he moved around a lot. The plaintiff’s background report included 22 address entries for him. Some of the address entries were for the same location but varied as to the formatting of the address. The plaintiff claimed that reporting formatting variations inaccurately conveyed that he had lived at 22 different locations. The plaintiff did not allege that anyone had interpreted the report that way or that he had not lived at those locations. Nonetheless, quoting Robins, the court held that a plaintiff is injured by “‘the very existence of inaccurate information in his credit report.’”

Potential Conflict with Spokeo and Dreher

The Ninth Circuit’s opinion is difficult to reconcile with Spokeo. In Spokeo, the U.S. Supreme Court held that, to be sufficient, an injury must “actually exist” and clarified that “not all inaccuracies cause harm or present any material risk of harm” to a plaintiff. Yet, the Ninth Circuit held that an inaccurate report is itself a concrete injury even if the only people who received the report were the plaintiff and his lawyer. (The plaintiff did not allege that the defendant had furnished his report to anyone other than the plaintiff and his lawyer.)

The Ninth Circuit’s position also seems to conflict with the Fourth Circuit’s ruling in Dreher v. Experian Information Solutions. In that case, the plaintiff sued a consumer reporting agency for inaccurately identifying the source of credit information in his report. The Fourth Circuit rejected the plaintiff’s argument that the inaccuracy itself was an injury. Instead, the court held that a plaintiff must show that he “was adversely affected by the alleged error on his report.” The court reasoned that an inaccuracy “work[s] no real world harm” unless it has a negative impact on the consumer.

Implications for Businesses

Robins and Dreher indicate that the federal courts are still grappling with Spokeo’s meaning. We expect the issue will continue to percolate in the federal courts. If the divide on Spokeo’s application deepens among the federal courts of appeal, the U.S. Supreme Court may revisit the standing issue to provide more clarity.

For now, under Robins, consumers may be able to bring FCRA claims in federal court whenever their reports contain inaccurate information unless that information is truly benign, such as when an address contains a mistyped zip code. Even if a plaintiff lacks Article III standing under Dreher, he or she may be able to proceed in state court in jurisdictions that recognize broad standing to sue for any statutory violation.

For this reason, companies preparing or obtaining credit checks, employment checks, or other background checks should be careful to comply with each of the FCRA’s highly technical requirements. Similarly, companies, such as financial institutions, that furnish information about customers to consumer reporting agencies should ensure that they have measures in place to ensure accurate reporting and to handle consumer disputes properly. Failing to comply with a FCRA requirement could expose a company to class action liability even if the violation did not affect the plaintiff or any class member.

If you have questions about these or other issues, please reach out to the author or your Seyfarth attorney.

Also By Robert T. Szyba, and Ephraim J. Pierre

Seyfarth Synopsis: In deciding Spokeo v. Robins, the U.S. Supreme Court reaffirmed that plaintiffs seeking to establish that they have standing to sue must show “an invasion of a legally protected interest” that is particularized and concrete — that is, the injury “must actually exist.” Bare procedural violations are not enough.supreme-court

Today, the U.S. Supreme Court issued its long awaited decision in Spokeo, Inc. v. Robins, No. 13-1339 (U.S. 2016), which we have been watching closely for its possible dramatic implications on the future of workplace class action litigation.

In a 6 to 2 opinion authored by Justice Samuel A. Alito, Jr., the Supreme Court held that the Ninth Circuit’s injury-in-fact analysis under Article III was incomplete. According to the Supreme Court, of the two required elements of injury in fact, the Ninth Circuit addressed only “particularization,” but not “concreteness,” which requires a plaintiff to allege a “real” and not “abstract” injury. Nevertheless, the Supreme Court took no position on the correctness of the Ninth Circuit’s ultimate conclusion: whether Robins adequately alleged an injury in fact.

Based on its conclusion, the Supreme Court vacated the Ninth Circuit’s ruling and remanded for further consideration consistent with the Opinion. Justice Thomas concurred, while Justice Ginsburg (joined by Justice Sotomayor) dissented.

Given the stakes and the subject matter, the ruling is a “must read” for corporate counsel and all employers.

The Case’s Background

This ruling is likely to have substantial impact on class action litigation overall, as we have discussed in our prior posts here, here, and here.

In Spokeo, the issues focused on the Fair Credit Reporting Act (“FCRA”), which requires that consumer reporting agencies (“CRAs”) follow reasonable procedures to assure maximum possible accuracy of its consumer reports (15 U.S.C. § 1681e(b)), issue specific notices to providers and users of information (1681e(d)), and post toll-free phone numbers to allow consumers to request their consumer reports (1681b(e)).

The purported CRA in this case was Spokeo, Inc. (“Spokeo”), which operates a “people search engine” — it aggregates publicly available information about individuals from phone books, social networks, marketing surveys, real estate listings, business websites, and other sources, which it organizes into comprehensive, easy-to-read profiles. Notably, Spokeo specifically states that it “does not verify or evaluate each piece of data, and makes no warranties or guarantees about any of the information offered . . .,” and warns that the information is not to be used for any purpose addressed by the FCRA, such as determining eligibility for credit, insurance, employment, etc.

In July 2010, Plaintiff Thomas Robins filed a putative class action alleging that Spokeo violated the FCRA because it presented inaccurate information about him. He alleged that Spokeo reported that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any). But beyond identifying the inaccuracies, he did not allege any actual damages. Instead, he argued that Spokeo’s alleged FCRA violation was “willful” and therefore he sought statutory damages of between $100 and $1,000 for himself, as well as for each member of the purported nationwide class.

The district court dismissed the case, finding that “where no injury in fact is properly pled” a plaintiff does not have standing to sue. In February 2014, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the “violation of a statutory right is usually a sufficient injury in fact to confer standing” and that “a plaintiff can suffer a violation of the statutory right without suffering actual damages.”

In its petition for certiorari, Spokeo posed the following question to the Supreme Court: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.” Spokeo highlighted a circuit split, as the Fifth, Sixth, and Seventh Circuits previously lined up with the Ninth Circuit’s approach, while the Second, Third, and Fourth Circuits generally disagreed and required an actual, concrete injury.

After being granted certiorari, Spokeo argued that the Ninth Circuit’s holding was inconsistent with the Supreme Court’s precedents, the Constitution’s text and history, and principles of separation of powers. More specifically, Spokeo argued that Robin’s bare allegations of FCRA violations, without any accompanying concrete or particularized harm, were insufficient to establish an injury in fact, and thus failed to establish Article III standing.

Robins responded that the Supreme Court’s precedent established that Congressmay create private rights of action to vindicate violations of statutory rights that are redressable through statutory damages.

The U.S. Solicitor General also weighed in, appearing as an amicus in support of Robins, and argued that the Supreme Court should focus on the specific alleged injury — the public dissemination of inaccurate personal information — and, specifically, the FCRA. The Government argued that the FCRA confers a legal right to avoid the dissemination of inaccurate personal information, which is sufficient to confer standing under Article III.

The Supreme Court’s Decision

Writing for the majority on the Supreme Court, Justice Alito held that Ninth Circuit failed to consider both aspects of the injury-in-fact requirement under Article III when analyzing Robin’s alleged injury, therefore its Article III standing analysis was incomplete. Slip. Op. at *8. The Supreme Court determined that to establish injury in fact under Article III, a plaintiff must show that he or she suffered “an invasion of a legally protected interest” that is both “concrete and particularized.” Slip. Op. at *7. For an injury to be “particularized,” it “must affect the plaintiff in a personal and individual way.” Id. “Concreteness,” the Supreme Court found “is quite different from particularization.” Id. at *8. A concrete injury must “actually exist” and must be “real” and not “abstract.” Id.

The Supreme Court further stated that concreteness includes both easy to recognize tangible injuries as well as intangible injuries. Id. at 8-9. The Supreme Court instructed that when considering intangible injuries, “both history and the judgment of Congress play important roles.” Id. In particular, Congress may identify intangible harms which meet Article III’s minimum requirements. Id.Nevertheless, the Supreme Court cautioned that plaintiffs do not “automatically” meet the injury-in-fact requirement where the violation of a statutory right provides a private right of action. Id. Thus “Robins could not, for example, allege a bare procedural violation divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Id. The Supreme Court also added that the “risk of real harm” may also satisfy the concreteness requirement, where harms “may be difficult to prove or measure.” Id.

Viewing the FCRA in light of these principles, the Supreme Court recognized that while Congress “plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk . . .[,] Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.” For example, the Supreme Court noted it would be “difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.” Id. at * 11.

Justice Thomas concurred, reviewing the historical development of the law of standing and its application to public and private rights of action, finding the standing requirement a key component to separation of powers.

Justice Ginsberg, joined by Justice Sotomayor, largely agreed with the majority, but nevertheless dissented. She departed from the majority’s reasoning on the issue of concreteness, but based on the injury alleged, not on the fact that concrete harm wasn’t required. Id. at *3 (Ginsberg, J., dissenting). Under her analysis, Justice Ginsberg would have found that the nature of Robin’s injury was sufficiently concrete because of his allegation that the misinformation caused by Spokeo “could affect his fortune in the job market.” Id. at *3-5 (Ginsberg, J., dissenting).

Implications For Employers

Spokeo can be interpreted as a compromise – with some useful language and reasoning for employers to use in future cases. While the Supreme Court avoided a broader question of Congress’s ability to create private rights of action and other weighty separation of powers issues, it announced the proper analytic framework for assessing the injury-in-fact requirement under Article III. The Supreme Court provided some good news for employers, consumer reporting agencies, and other corporate defendants, as well as potential plaintiffs with respect to class action litigation under a variety of federal statutes, including the FCRA. In particular, the Supreme Court was clear that alleged injuries must be both particular and concrete, meaning that injuries must be “real” and not “abstract.” Thus, a mere procedural violation without any connection to concrete harm cannot satisfy the injury-in-fact requirement of Article III.

However, the Supreme Court may not have shut the door on lawsuits alleging intangible injuries based on violations of statutory rights. While the Supreme Court’s opinion today may discourage some consumer, workplace, and other types of class actions seeking millions in statutory damages, potential litigants will likely have to be more creative in how they frame alleged injuries tied to violations of statutory rights.

Spokeo also transcends the employment context, as the constitutional requirement of Article III applies in all civil litigation. Plaintiffs seeking to file lawsuits in other regulated areas, such as under ERISA, the Americans with Disabilities Act, as well as a host of other statutes are likewise affected by today’s decision. Without particularized, concrete injury, federal jurisdiction is beyond the reach of plaintiffs seeking statutory damages for technical violations.

This blog was cross-posted with our Workplace Class Action Blog:


By:  Robert Milligan and D. Joshua Salinas

California’s Auto-Renewal Law (Cal. Bus. & Prof. Code § 17600 et seq.) has given rise to a recent torrent of new lawsuits in California, many brought on a putative class action basis, targeting businesses that offer subscription based goods or services to California consumers. With few published decisions analyzing and interpreting the statute since its enactment in 2010, businesses often face a high degree of uncertainty and potential legal exposure when addressing demand letters threatening legal action or lawsuits seeking class certification.

Scope and Application

California’s Auto-Renewal Law applies, with certain exceptions, to any arrangement where a paid subscription or purchasing agreement is automatically renewed until the consumer cancels. Simply put, the purpose of the statute is to require businesses to disclose their subscription terms in a clear and conspicuous manner, including cancellation information, and obtain affirmative consent before charging consumers debit or credit cards on a recurring basis. It is important to note that it applies to not only online subscriptions, but also those procured through hard copy (e.g. paper) and audio (e.g., telephone) methods. The statute arose from an effort to end the practice of charging consumers, without their explicit consent, for continuing products or services (e.g., magazine and music subscriptions).

A wide array of companies providing subscription-based services have already been hit with such lawsuits, including media and entertainment providers (e.g., SiriusXM, Hulu, Spotify), data storage providers (e.g., DropBox), monthly “box” and food delivery services (e.g., BirchBox, Blue Apron), theme parks (e.g., SeaWorld), and dating service providers (e.g., Tinder).

Several cases brought under this statute are currently being challenged at the pleading stage, some cases have been settled on a class-wide basis, and at least one case was granted class certification.


The following terms must be disclosed in a clear and conspicuous manner before the subscription or purchasing agreement is fulfilled and in visual proximity (or temporal proximity for voice/audio offers) to the request for consent to the offer:

  1. That the subscription or purchasing agreement will continue until the consumer cancels;
  2. The description of the cancellation policy that applies to the offer;
  3. The recurring charges that will be charged to the consumer’s credit or debit card or payment account with a third party as part of the automatic renewal plan or arrangement, and that the amount of the charge may change, if that is the case, the amount to which the charge will change, if known;
  4. The length of the automatic renewal term or that the service is continuous, unless the length of the term is chosen by the consumer; and
  5. The minimum purchase obligation, if any.

The business must also provide to the consumer an acknowledgement (which can be provided after the initial order is completed) that is capable of being retained and provides the following:

  1. The automatic renewal of continuous service offer terms;
  2. The cancellation policy; and
  3. A cost-effective, timely, and easy-to-use mechanism for cancellation (e.g., toll free phone number, email address) and information regarding how to cancel.

The Meaning of Clear and Conspicuous

The statute details what constitutes clear and conspicuous written disclosures. Specifically, written disclosures must be “in a manner that clearly calls attention to the language” as follows:

  • in larger type than the surrounding text, or
  • in contrasting type, font, or color to the surrounding text of the same size, or
  • set off from the surrounding text of the same size by symbols or other marks.

In the case of an audio disclosure, clear and conspicuous means “in a volume and cadence sufficient to be readily audible and understandable.”

Affirmative Consent

The statute requires businesses to obtain affirmative consent before charging consumers debit or credit cards on a recurring basis. The statute does not, however, define or address what constitutes affirmative consent.

Free Trials and Material Changes to the Terms of the Auto-Renewal Offer

If the auto-renewal offer provided to the consumer contains a free trial, the business must disclose to the consumer how to cancel before he or she pays for the goods or services.

In the case of a material change to the auto-renewal or continuous service that has been accepted by a consumer, the business must provide the consumer with clear and conspicuous notice of the material change and provide information regarding how to cancel in a manner that is capable of being retained by the consumer.


The Auto-Renewal Law’s available remedies have made it attractive for the plaintiffs bar. The statute provides that all civil remedies that apply to a violation of the statute are available. Further, any goods or other products sold without the requisite disclosures are considered an unconditional gift. In other words, consumers may be entitled to refunds (including shipping and handling costs) without having to return their purchases. Many recent lawsuits have been brought as putative class actions under California’s Unfair Competition Laws (Cal. Bus. & Prof. Code § 17200 et seq.), thus increasing the potential amount of exposure especially for businesses that have millions of California subscribers. Some litigants have challenged whether there is a stand-alone cause of action under California’s Auto-Renewal Law. This issue is presently the subject of a demurrer in one closely watched case filed in Santa Clara County state court.

Defenses and Defense Strategies:

  • Good Faith Exception: The statute expressly provides in Section 17604 that a business will not be subject to civil remedies if it “complies with the provisions of this article in good faith.” Unfortunately, there is currently no case law addressing what constitutes “good faith” under the statute. Nonetheless, businesses should seek the advice of competent counsel and take reasonable efforts to ensure compliance with the statute.
  • Enforceable Mandatory Arbitration Provisions and Class Action Waivers: Enforceable mandatory arbitration provisions with class action waivers (such as in Terms of Conditions or Terms of Use policies) may provide an effective strategy to attempt to minimize exposure to class claims brought under the Auto-Renewal Law. See AT&T Mobility v. Concepcion, 563 U.S. 333 (2011). Indeed, some notable auto-renewal cases have been compelled to arbitration. Plaintiffs’ attorneys have also reported being discouraged from bringing such putative class actions when an applicable and enforceable arbitration provision exists.
  • Exemptions: The statute identifies a limited set of businesses exempt from its requirements: (1) businesses with authorization issued by the California Public Utilities Commission (“CPUC”), (2) businesses regulated by the CPUC, Federal Communications Commission, or Federal Energy Regulatory Commission, (3) entities regulated by the Dept. of Insurance, (4) certain alarm company operators, (5) banks, bank holding companies, credit unions, and other financial institutions licensed under state or federal law, (6) service contractor sellers and service contract administrators regulated by the Bureau of Electronic and Appliance Repair.
  • California Resident: At least two federal district courts have dismissed at the pleading stage claims brought by non-California residents under the Auto-Renewal Law. These courts have expressly held that the statute limits recovery to only California citizens.
  • No Actual Damages: In Robins v. Spokeo, No. 13-1339, the United States Supreme Court is presently considering whether a plaintiff can maintain a class action suit seeking damages for technical legal violations in which there was no actual injury to the plaintiff, only statutory damages available. Similarly, suits alleging violations of Section 17600 are also susceptible to this argument asserting that plaintiffs lack standing to maintain such suits.


Companies that utilize auto-renewal services for sales of goods or services in California should scrutinize their disclosures provided both before and after transactions. The disclosure requirements are intricate, but good faith compliance and enforceable arbitration provisions may nonetheless minimize potential liability.

WebinarOn Tuesday, May 26, 2015 at 12:00 p.m. Central, Jason P. Stiehl, Giovanna A. Ferrari and Jordan P. Vick will present the first installment of the 2015 Class Action Webinar series. They will provide a summary of key decisions from 2014, identify key trends for companies to watch for in 2015, as well as practical “best practices” and risk management for the future.

In 2014, companies saw a major change in the focus and risk of class action litigation. According to one industry survey, the percentage of class actions qualifying as “high risk” or “bet-the-company” tripled from 4.5 percent to 16.4 percent. This no doubt derives from the increase in volume of large settlements and continued increase in volume of suits under statutes with minimum statutory penalties, such as the Telephone Consumer Protection Act (TCPA).

The webinar will be provide insight on:

  • The landscape for in-house counsel, including identifying the legal market spend and risk for class actions
  • Case law and trends from 2014, including:
    • evolving class certification standards post-Comcast
    • increased scrutiny of class settlements
    • continued TCPA filings and large settlements
    • post-Concepcion waiver decisions and the CFPB’s arbitration study
    • standing and privacy/data breach cases
  • Highlights from 2015, including:
    • increase use of motion to strike class allegations
    • CAFA challenges
    • TCPA decisions
    • DirecTV Supreme Court arbitration case
    • International expansion of class action vehicle in Europe
  • Practical considerations and takeaways


Registration: there is no cost to attend this program, however, registration is required.

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

If you have any questions, please contact

CFPBOne of the largest issues to loom over the class action battlefield in the past decade has been the use of arbitration clauses in consumer contractual relationships.  As many know, and as discussed in our sister blog, Workplace Class Action Blog, the United States Supreme Court’s seminal 2011 decision in AT&T Mobility v. Concepcion became a guiding light for many businesses on how, and when, to utilize arbitration provisions in their agreements.   More recently, as discussed in a previous post, in 2013, the Court provided further guidance regarding waiver of class arbitration in American Express Co. v. Italian Colors Restaurant.  The debate since has raged between consumer advocacy groups and businesses that requiring consumers to arbitrate favors businesses and artificially limits recovery for consumers.  Silent in that debate, however, has been any empirical data to support the claim– until know.  On March 10, 2015, the CFPB released the final results of its consumer arbitration study.  Not surprisingly, the report is heavily critical of the arbitration process and supportive of allowing consumers to pursue claims in federal court using the Rule 23 class vehicle.

The Study

Section 1028 of the Dodd-Frank Act authorizes the Consumer Financial Protection Bureau (“CFPB”) to regulate or even eliminate arbitration provisions from consumer financial products and services agreements, if it determines such action is “in the public interest and for the protection of consumers.”  To that end, starting in 2012, the CFPB set about compiling data to support this goal.  The 728-page report analyzed nearly 850 consumer finance agreements, 1,800 consumer arbitration disputes, 3,400 individual federal court lawsuits, 42,000 credit card cases filed in small claims court and 420 class action settlements filed in federal courts.   The results, again heavily sloped in favor of meeting the initial objective, include the following findings:

  • Tens of millions of consumers are covered by mandatory arbitration agreements
  • Arbitration clauses were present in 53 percent of credit cards studied, 92 percent of prepaid cards and 86 percent of private student loan lenders
  • Approximately 600 arbitration were filed per year between 2010 and 2012 in six different consumer finance markets
  • There is no evidence that arbitration clauses lead to lower prices for consumers
  • Over 90 percent of the arbitration agreements studied contained class action waivers
  • Class action settlement provide substantially more relief to consumers than arbitration awards
  • Over 75% of consumers surveyed said they were not aware of arbitration clauses in their agreements
  • Less than 7% of consumers surveyed knew that arbitration clauses prevent them from suing


 In his “Chapters from My Autobiography,” Mark Twain wrote “Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.'”

While the CFPB’s omnibus study appears to be an extensive work, compiling years of data and thousands of data points, it must be remembered that the genesis of this study was to support the CFPB’s charge of regulating or even eliminating arbitration provisions from consumer financial products and service agreements.  Nonetheless, with this data, it seems inevitable that the next word we can expect to hear from the CFPB will be rulemaking efforts to effectuate this goal.  While it is unclear whether the CFPB intends to severely limit the use of arbitration provisions in consumer financial agreements or propose an outright ban of such provisions, it is certain that the landscape for consumer arbitration agreements and class action waivers will change significantly in the near future.

As always, we will continue to keep you abreast of these events as they unfold.

The push to restrict collection of old debts is gaining steam.  On March 11, 2014, the Seventh Circuit reversed dismissals of two federal Fair Debt Collection Practices Act (FDCPA) claims that challenged dunning letters offering to “settle” debts that were subject to a statute of limitations defense.  Although the court made clear that it is not “automatically improper . . . to seek repayment of time-barred debts,” it found that offers to “settle” a debt may falsely suggest that the debt is legally enforceable, and thereby support claims under the FDCPA at least at the pleading stage.  McMahon v. LVNV Funding, LLC, and Delgado v. Capital Mgt. Servs., LP, Nos. 12-3504, 13-2030, 2014 WL 929358 (7th Cir. Mar. 11, 2014).

Because the Third and Eighth Circuits previously held that dunning letters seeking to collect time-barred debts do not violate the FDCPA unless they threaten litigation, there is now a split in the circuits and a possibility of Supreme Court review.  Notably, both the Federal Trade Commission and the Consumer Financial Protection Bureau filed amicus briefs in McMahon; they also have done so in a pending Sixth Circuit case, Buchanan v. Northland Group, Inc., No. 13-2523 (br. filed Mar. 5, 2014).

As we predicted last year, debt collection practices are now one of the principal areas of focus for state and federal regulators, state Attorneys General, and the plaintiffs’ class action bar.  More class actions and enforcement actions are coming.  It therefore is essential for both debt collectors and debt owners to carefully scrutinize their debt collection communications with the current environment in mind.

On Friday, December 13th, a Brooklyn federal judge approved a $7.25 billion settlement of an eight-year-old antitrust class action brought against Visa and MasterCard for an alleged conspiracy to fix credit card swipe fees.  In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, No. 05-MD-1720 (JG)(JO) (E.D.N.Y. Dec. 13, 2013, R. 6124).

In approving the settlement, Judge John Gleeson overruled objections made by dozens of department stores, supermarkets, wholesalers, restaurants, retailers, trade groups, and many others.  At least three sets of objecting plaintiffs have already appealed Judge Gleeson’s ruling to the Second Circuit, two appeals being filed the same day that the court issued its decision.

The Swipe Fees at Issue.

The lawsuit alleged that Visa’s and MasterCard’s interchange rules governing their credit card transactions at over 21 million[1] of the nation’s “merchants” violated federal antitrust laws by artificially inflating the interchange fees (or “swipe fees”) paid by merchants for each transaction.  Plaintiffs alleged that the combined effect of Visa’s and MasterCard’s mandatory minimum swipe fees (“default interchange rule”), “honor all cards rules,” and “anti-steering rules,” was to eliminate competition among card-issuing banks to lower swipe fees below the mandatory minimum, thus unlawfully fixing the swipe fees at that minimum level.

In general terms, a normal credit card purchase works like this:  a purchaser pays a merchant for goods and services with a credit card.  That transaction is routed first to the “acquiring bank,” which processes the transaction and then transmits it to Visa or MasterCard.  The card company then transmits the purchase to the bank that issued the credit card (“issuing bank”).  The issuing bank then pays the merchant the price of the purchase, less the applicable swipe fees.  Some fees are higher than others, depending on the type of card (i.e. the richness of the accountholder’s reward benefits, as in the case of a Visa Signature or MasterCard Word Elite card), and other factors.  The default interchange rule required a minimum swipe fee for all card purchases.

The other swipe fee rules included the “honor-all-cards rule” and “anti-steering rules,” which, according to plaintiffs, ensured payment of the mandatory minimum fee.  The honor-all-cards rules required merchants to accept all cards, regardless the swipe fees associated with each card, which merchants were required to absorb.  Under the anti-steering rules, merchants could not recoup those higher fees by surcharging higher-fee card purchases, or by “steering” customers to lower-fee payment methods (i.e. checks, cards issued by the merchant) by discounting the price on purchases made by those methods.  Though merchants and issuing banks could agree on their own swipe fees (no easy task, considering the number of merchants, banks, and negotiating factors), issuing banks had no incentive to charge below the default mandatory minimum.  The net result of the fees regime, according to plaintiffs, was a fixed price for merchants to pay for Visa and MasterCard transactions, in violation of federal antitrust laws.

While the suit was pending, a few major developments significantly changed the swipe-fee landscape, which factored heavily into Judge Gleeson’s fairness analysis.  Between 2006 and 2008, MasterCard and Visa went public, converting from bank-member ownership to independent companies with no bank governance.  Their rules, therefore, were no longer largely controlled by issuing banks, and the banks thus lost some of their fee-setting influence.

Further, in 2010, Congress, with the Durbin Amendment to the Dodd-Frank Act, removed the no-merchant-discount restriction under the anti-steering rules.  15 U.S.C. §1693O-2(b)(3)(A)(i).  Thus, merchants could discount purchases made with their own cards, allowing them in the end to avoid or recoup some of the higher swipe fees.

In 2011, to resolve DOJ investigations aided by plaintiffs, Visa and MasterCard agreed to allow merchants to discount purchases based on the type of card used – i.e., a credit or debit card, high-reward or low-reward card.  These consent decrees gave merchants more ability to steer purchases to lower-fee or no-fee transactions.

Also in 2011, the DOJ declined to take any enforcement action against Visa and MasterCard regarding the remaining no-surcharge rules, thus raising doubts as to whether the court in the pending case would find that those rules violated antitrust laws.

The Settlement.

In addition to the cash settlement, Visa and MasterCard agreed to (i) allow merchants to surcharge purchases made with either brand’s cards, regardless the card type or the richness of the card’s rewards, (ii) negotiate in good faith with merchant buying groups (not unlike a collective bargaining situation, thus increasing merchant leverage over fees), (iii) allow larger merchants to accept Visa and MasterCard at fewer than all of its banner businesses, and (iv) lock-in the Durbin Amendment’s merchant-discounts provisions and the 2011 product-level discount consent decrees.

The new surcharge system under the agreement has four elements:  (1) merchants may recoup the full average discount fee that the issuing bank charges the merchant, (2) merchants may surcharge all Visas and MasterCards, or distinct card groups (i.e. Visa Signature cards or MasterCard World Elite cards with higher swipe fees), (3) mandatory disclosure to purchasers of the amount of the surcharge and that it does not exceed the merchant’s acceptance cost, and (4) the “level-playing-field” provision, where merchants must surcharge all of its accepted card transactions (i.e. American Express and Discover purchases) if it decides to surcharge its Visa and MasterCard transactions.

The settlement was reached after years of negotiations, which became more frequent and intense in late 2011 and the first half of 2012.  Judge Gleeson and Magistrate Judge James Orenstein presided over a number of lengthy settlement conferences, as did two outside mediators (retired Judge Edward Infante and Professor Eric Green).  The parties filed a memorandum of understanding of the settlement in mid-July 2012, and the court thereafter conducted the notice and fairness procedures.

The Approval Decision.

In a 50-page opinion (issued three months after the September 13th fairness hearing), Judge Gleeson approved the settlement for the 12 million-member class, and overruled the objections that the deal’s cash components and rules changes were insufficient.

In determining fairness and ruling on the objections, the court considered the age of the case, the fact and expert discovery conducted, the fully briefed summary judgment motions, the prior settlement negotiations, prior industry developments regarding swipe fees, the class members’ reactions to the proposed settlement (i.e. number and nature of objections and opt-outs), plaintiffs’ chances of establishing liability and damages at trial, the value of the settlement compared to (i) those chances and risks, and (ii) defendants’ ability to pay, and the plan for allocating the settlement proceeds.

The court paid particular attention to (i) the seemingly high hurdles to plaintiffs’ establishing antitrust liability, and (ii) relatedly, the procompetitive benefits of the elimination of the no-surcharge rules.  One liability hurdle, which was briefed in defendants’ summary judgment motions, was whether plaintiff merchants had proper antitrust standing.  With limited exceptions, only direct purchasers have standing under federal antitrust laws, per Illinois Brick Co. v. Ill., 431 U.S. 720, 736 (1977).  Downstream market participants (often called “indirect purchasers”) do not (though they may under some states’ antitrust statutes).  Merchant plaintiffs were not necessarily the direct purchasers, the court wrote; rather, the “acquiring banks” (the link between the merchant and Visa / MasterCard in a card purchase) were arguably the only direct purchasers with proper standing.  The merchant plaintiffs risked losing the case on this ground alone, the court said.

Another liability hurdle, also briefed on summary judgment, was that the mandatory minimums and honor-all-cards rules were arguably permissible, procompetitive checks on the heavy negotiation costs of individual interchange agreements, and because they incentivized issuing banks to compete for cardholders with more lucrative account rewards, lower finance charges, and by absorbing fraudulent purchases.  The court noted that prior courts and commentators had upheld or validated the mandatory minimums and honor-all-card rules against antitrust challenges, citing their usefulness in avoiding negotiation of individual fees, and assuring universal acceptance of Visas and MasterCards.

Regarding the elimination of the no-surcharge rules, the court said, “…this rule change, which Class Plaintiffs and the Individual Plaintiffs fought very hard to obtain, and an indisputably procompetitive development that hast the potential to alter the very core of the problem this lawsuit was brought to challenge.”  (p. 31).  The objectors, on the other hand, argued that the rule change was “essentially worthless” because (i) ten states still prohibited surcharges, (ii) American Express still prohibits surcharging, and thus the great many merchants accepting American Express cards will not be able to surcharge Visa or MasterCard purchases under the level-playing-field provision, and (iii) the mandatory disclosure rules were unfair, and unsophisticated merchants would not understand, or implement them.  The court overruled these objections as insufficient to strike down the settlement.


We will keep our eyes on this case as it makes its way through the Second Circuit, and possibly to the Supreme Court.  In addition, it is inevitable that this settlement will spawn a host of spinoff class actions against the underlying issuing banks.  We will keep our avid readers apprised as things develop.

[1] During the fairness stage, the proposed class consisted of approximately 12 million merchants, after netting out merchants which did not return their claim forms and those plaintiffs which opted out.

On June 17, 2013, the United States Supreme Court granted certiorari in Mount Holly v. Mount Holly Gardens Citizens in Action, Inc., which will address whether disparate impact claims are cognizable under the Fair Housing Act, 42 U.S.C. § 3601, et seq. (FHA)

Background Facts and Lower Court History

Mount Holly involves a group of predominantly low-income minority homeowners who sued a township, alleging that the town’s plans to redevelop the area were discriminatory and violated the FHA under a disparate impact theory.  The trial court initially dismissed the homeowners’ claims on summary judgment.  The Third Circuit reversed, holding that the homeowners made a prima facie showing that the redevelopment plan disproportionately affected minorities.  The township appealed, and the Supreme Court will review the sole issue of whether minorities may sue under the FHA when a policy has a disparate impact on them even if there is no proof of intentional discrimination.

The FHA contains no express language permitting disparate impact claims.  Nonetheless, most Circuit Courts — as well as the Department of Justice, the Department of Housing and Urban Development and the Consumer Financial Protection Bureau — have taken the position that disparate impact claims are available under the statute.  These Circuit Courts and government agencies have similarly insisted that disparate impact claims may also be brought under the Equal Credit Opportunity Act, 15 U.S.C. § 1691, et seq. (ECOA), despite the absence of such language in the ECOA authorizing such claims.   


Accordingly, the Supreme Court’s ruling in Mount Holly may ultimately resolve uncertainty over whether housing and lending policies that result in unintended discrimination may be subject to litigation under the FHA and ECOA.  We are monitoring the case closely and will report on further developments. 


California Penal Code section 632.7 imposes criminal liability and, pursuant to Penal Code section 637.2, civil liability upon persons who intercept or receive a communication involving a cellular or cordless telephone and record the communication without consent.  The section and its sister provision, Penal Code section 632, are popular among class action plaintiffs in California as a means to challenge the business practice of recording customer service calls.   

The appeal of section 632.7 to plaintiffs is that it may not require the subject communication be confidential, unlike section 632. The question is raised, though, if section 632.7 even applies to the parties to a cellular or cordless telephone call.  Subsection (a) of the provision states, in part:

Every person who, without the consent of all parties to a communication, intercepts or receives and intentionally records, or assists in the interception or reception and intentional recordation of, a communication transmitted between two cellular radio telephones, a cellular radio telephone and a landline telephone, two cordless telephones, a cordless telephone and a landline telephone, or a cordless telephone and a cellular radio telephone, shall be punished by a fine [] or by imprisonment in a county jail [].

The provision can plausibly be read to mean that only third parties who intercept or receive a call involving others are subject to the law and that the law does not apply to the parties to the call. 

Unfortunately for defendants, the courts that have addressed the issue have ruled section 632.7 does apply to the call’s participants.  See, e.gSimpson v. Vantage Hospitality Group, Inc., No. 12-cv-04814-YGR, 2012 WL 6025772, at *5-6 (N.D. Cal. Dec. 04, 2012); Simpson v. Best Western Intern., Inc., No. 3:12–cv–04672–JCS, 2012 WL 5499928, at *6-9 (N.D. Cal. Nov. 13, 2012); Brown v. Defender Sec. Co., No. CV 12-7319-CAS PJWX, 2012 WL 5308964, at *4-5 (C.D. Cal. Oct. 22, 2012).  The courts found that the term “receives” in the section shows the provision’s applicability to call participants under the reasoning that during a call the participants “receive” communications from each other.  See, e.g., Best Western, 2012 WL 5499928 at *7-9 (so holding, though recognizing the plausibility that “receives” refers third parties who inadvertently receive communications by happenstance).

But, the federal district court decisions are not binding, and no published California appellate decision has held that section 632.7 applies to the parties to the communication.  Thus, it is still an arguable question in California whether the section applies to the communication’s participants.  The legislative history of the provision suggests it does not.

The Legislative History of Penal Code Section 632.7

The primary concern of the provision’s sponsors was the threat posed to the privacy of communications that travelled over the “airwaves” when either a cellular or cordless telephone was used.  The fear being that technological advances allowed such communications to be intercepted by third parties.  The sponsors felt that innocent interception or reception of a communication travelling over the air should not be punished, but that intentionally recording an intercepted or received call improperly intruded on privacy.  It was believed that Penal Code sections 632.5 and 632.6, which respectively prohibit maliciously eavesdropping on telephone communications over cellular and cordless telephones, did not address calls intercepted without malice but which were recorded. 

The intent of section 632.7 was thus to punish third parties who receive or intercept a call between other parties and record the call.  The author of the law, in explaining its purpose, wrote that there is a lower expectation of privacy for cellular and cordless communications travelling over the air, but that “this does not mean that persons who use cellular or cordless telephones may reasonably anticipate that their conversations will be both intercepted and recorded.”  Author Lloyd G. Connelly’s Statement of Intent, Assem. Bill No. 2465 (1992), p. 1.  (Emphasis original.)  He further explained:

While there may be utility in retaining relatively unimpeded access to the public ‘air waves,’ there is no value in permitting private telephone conversations that employ the ‘air waves’ to be indiscriminately record[ed].  AB 2465 strikes the appropriate balance.  The innocent, merely curious, or non-malicious interception of cellular or cordless telephone conversation will remain legal.  However, it will be illegal to record the same conversationsId.  (Emphasis added.)

That the section is intended to punish only the conduct of strangers to the call is further supported by then Sacramento County District Attorney Steven White who proposed to Connelly legislation in this area.  White advocated that the new statute was needed to “criminalize the recording of an intercepted cordless or cellular phone call.”  Letter to Assembly members Phil Isenberg and Lloyd Connelly (Nov. 5, 1991), p. 2.  He was motivated by a publicized incident in which a third party intercepted and recorded a conversation between two businessmen discussing a deal involving a third businessman. Id

Other contemporaneous pieces of the legislative history further suggest the provision was meant to apply only to calls that were both eavesdropped upon and recorded.  The Department of Finance summarized the bill as creating a new crime for the “willful interception and recording of virtually all types of transmitted communications between cellular telephones, cordless telephones, cellular and cordless telephones, cellular and landline telephones, and cordless and landline telephones.”  Dept. of Finance, Analysis of Assem. Bill No. 2465 (June 1, 1992), p. 1. (Emphasis added.)   The Senate Judiciary Committee in explaining the legal landscape at the time wrote “there is currently no statute prohibiting a person from intercepting and intentionally recording a communication transmitted via cellular or cordless telephones.”  Sen. Judiciary Com., Analysis of Assem. Bill No. 2465 (1991–1992 Reg. Sess.), p. 2. (Emphasis added.)  Assemblyman Connelly’s press release announcing the introduction of the legislation characterized it as “legislation to outlaw the intentional eavesdropping and recording of cellular and cordless telephone conversations.”  Author Lloyd G. Connelly’s Press Release (February 4, 1992), p. 1. (Emphasis added.)  But see Flanagan v. Flanagan, 27 Cal.4th 766, 771 n. 2 (2002) (stating in dictum and without analysis of the legislative history or otherwise that section 632.7 “prohibits intentionally intercepting or recording communications involving cellular telephones and cordless telephones”).   

Absent from the legislative history is an intent to regulate the conduct of the parties to the communication.  Indeed, the Legislature does not appear to have even considered the circumstance where a party to a communication records the communication.  Rather, the overwhelming focus of the legislative history is on third parties who intentionally or by accident receive a call between two other parties. 

Based on the Legislative History, Penal Code Section 632.7 Should Not Apply to the Parties to a Communication

In light of the legislative history, the term “receives” in section 632.7 is best read as not encompassing an intended recipient of a communication (i.e., a party to the call), but rather as referring to third parties who incidentally receive telecommunication signals, such as through the use of scanning equipment or other technology.  If the term “receives” were meant to include anyone who hears a communication including the participants to the call, then the term “intercepts” in the section becomes unnecessary.  One who “intercepts” a communication necessarily “receives” it as well.  A stronger interpretation that reconciles the legislative history with the terms of the provision and avoids superfluity is one that recognizes the term “intercepts” to be a signal of the law’s intent to regulate third party eavesdroppers.  Under this view, the language of the section comprises a cogent whole where “intercepts” refers to intentional eavesdroppers and “receives” refers to accidental eavesdroppers.    

Finally, the inclusion of facsimile transmissions among the communications subject to the law (Penal Code § 632.7(c)(3)), would be odd if the law is intended to apply to the parties to a communication.  A facsimile transmission necessarily results in a recording of the communication.  Under an interpretation where the section applies to the parties to the communication, any fax would subject the recipient, if not both the recipient and the sender, to liability.  This unreasonable result dissipates, however, if the law is understood as penalizing only those who intercept a communication between others.

Ultimately, though some case law may be to the contrary, the legislative history of section 632.7 provides a good faith basis to argue that the section does not apply to the parties to the telephonic communication.  Of course, businesses are best served by not getting entangled in the statute in the first place.  The author would be happy to discuss steps businesses can take to try to avoid suit under sections 632.7 or 632 offline.