Jenner & Block

Consumer Finance Update Resource Center

As a service to Jenner & Block's clients and the greater legal community, the firm's Complex Commercial Litigation practice maintains this online resource center that offers the latest case law and other developments in consumer finance.

Jenner & Block will update this web page with new developments and items of interest as they become available.  For further information, please contact Partner Joseph L. Noga.

Dismissal Of TILA Claims Affirmed For Unsolicited Visa Cards

As part of an “Autosubstitution Program,” Target Corp. automatically sent unsolicited Visa cards to all holders of Target Guest Cards (its store brand cards), along with a credit agreement relating to the Visa cards.  The recipients had the option of activating the Visa cards; after activation, the Guest Cards would be deactivated and all balances transferred to the new Visa card.  One recipient of such an unsolicited VISA card sued Target under TILA, and the Seventh Circuit recently confirmed a district court order dismissing those claims.  Muro v. Target Corp., No. 08-1256, 2009 WL 2707537 (7th Cir. Aug. 31, 2009).  Plaintiff alleged that the Autosubstitution Program violated Section 127 of TILA, 15 U.S.C. § 1637(a), which requires a creditor to make certain disclosures “[b]efore opening any account under an open end consumer credit plan.”  The Seventh Circuit disagreed.  Although declining to define precisely when an account is deemed to have been “opened,” the court held that Target made the disclosures before:  the account was open, the card was activated, any fees were incurred, and any charges were made to the new card.  The court noted that this is consistent with Regulation Z’s requirement that the disclosures be made “before the first transaction is made under the plan.”

Ninth Circuit Applies Discovery Rule To FDCPA Limitations Period

The Ninth Circuit recently ruled that the discovery rule applies to the one year statute of limitations under the FDCPA.  Mangum v. Action Collection Service, Inc., 575 F.3d 935 (9th Cir. 2009).  Plaintiff Camarie Mangum sued several debt collection agencies under the FDCPA as a result of the agencies’ unauthorized release of her debt information to her employer. The debt collection agencies released Mangum’s information on December 8, 2004.  Mangum became aware of the release on December 15, 2004 and brought suit on December 14, 2005. An Idaho district court judge granted summary judgment for the defendants, holding that the FDCPA’s one year statute of limitations barred Mangum’s suit.  Mangum appealed, and the Ninth Circuit overturned the district court’s ruling.  Although the Ninth Circuit noted that the Supreme Court generally has questioned whether statutes of limitation for federal statutes are subject to a discovery rule, unless supporting language is expressly included in the statute, the Ninth Circuit held that those general reservations are not enough to overrule existing Ninth Circuit law.  Prior Ninth Circuit jurisprudence held that the discovery rule applies generally to all federal statutes, including the FDCPA.  As such, Mangum had until December 15, 2005 to bring suit since the one year statute of limitations did not begin running until she discovered the improper release of her information on December 15, 2004.

Offer to Enroll In "Fresh Start" Program Renders Debt Collection Letter Improper

A recent decision underscores the danger of trying to accomplish multiple tasks in an initial debt collection letter.  Reed v. Pinnacle Credit Servs., LLC, No. 09-544, 2009 WL 2461852 (E.D. Pa. Aug. 11, 2009).  Jefferson Capital Systems was hired to collect outdated, charged off debts.  In an initial debt collection letter to Reed, Jefferson accurately and correctly informed the debtor that its debts were old enough that Jefferson would not and could not bring legal actions to enforce them.  If that was all that the letter said, there would have been no problem.  Unfortunately for Jefferson, it included with the letter a brochure encouraging the debtor to enroll in a Fresh Start Solution Program, under which the debtor could transfer its outstanding balance to a credit card program run by another company.  That brochure makes clear that all disputes under the program will be subject to arbitration.  Reed argued that the reference to mandatory arbitration in the program brochure was inconsistent with the collection letter’s promise not to file any legal proceeding relating to time-barred debts.  The court agreed, and held that the allegations stated a claim that the least sophisticated debtor might be confused, and thus the collector improperly threatened to take actions that were prohibited by law.