Other Significant Industry Cases
United States v. NMAC, N.A., LLC, Case No. 3:19-cv-00658 (Middle District of Tennessee, Aug. 1, 2019)
A claim by the Department of Justice (DOJ) for violations of the Servicemembers Civil Relief Act (SCRA) resulted in a $3 million settlement between the United States and NMAC, an automobile financing company, plus new safeguards going forward. The SCRA, 50 U.S.C. §§ 3901-4043, provides various protections to military servicemembers.
The DOJ alleged that NMAC had engaged in a pattern and practice of violating two sections of the SCRA, sections 3952 and 3955. First, section 3952 provides that while a borrower is in military service, a lender cannot repossess the borrower’s vehicle without a court order, provided “a deposit or installment has been paid by the servicemember before the servicemember enters military service.” Second, section 3955 provides that a lessee may terminate a lease for a motor vehicle without penalty if, after executing the lease, the lessee is called to military service for a period of 180 days or greater, or receives orders to relocate outside the continental United States (or from a location outside of the continental United States to any other state). A servicemember exercising this right is entitled to a refund of any advance payments on the lease.
The DOJ alleged that NMAC repossessed at least 113 vehicles in violation of section 3952 since 2008, and failed to provide refunds to an unspecified number of servicemembers who terminated vehicle leases pursuant to section 3955.
In addition to the $3 million payment, meant to compensate victims identified by the DOJ, NMAC agreed to enact policies and procedures to ensure compliance with the SRCA going forward. These include requiring that NMAC search the Defense Manpower Data Center (DMDC), a database reflecting servicemembers’ military status, both before ordering a repossession and throughout the repossession process. If the DMDC indicates that a borrower is a protected servicemember, NMAC shall seek a court order before repossessing the vehicle. NMAC also agreed to develop and train employees on policies ensuring that servicemembers protected under section 3955 will receive the refunds to which they are entitled. NMAC further agreed to request that credit bureaus remove from borrowers’ accounts trade lines reflecting wrongful repossessions, and from lessees’ accounts trade lines reflecting lease termination. Going forward, NMAC must notify the United States every six months of any complaint it has received claiming a violation of the SCRA.
DiNaples v. MRS BPO, LLC, 934 F.3d 275 (3d Cir. 2019)
The Third Circuit upheld judgment for plaintiff in a class action alleging that a QR code printed on an envelope violated the Fair Debt Collection Practices Act (FDCPA). Defendant MRS BPO (MRS), a debt collector, sent plaintiff, a debtor, an envelope marked with a QR code, which, when scanned with a smartphone revealed MRS’s internal reference number for plaintiff’s account.
The FDCPA prohibits debt collectors from:
[u]sing any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.
15 U.S.C. § 1692f(8). Courts do not always apply this provision literally, since that “would seemingly prohibit including a debtor’s address and an envelope’s pre-printed postage, as well as any innocuous mark related to the post, such as ‘overnight mail’ and ‘forwarding and address correction requested.’” DiNaples, 934 F.3d 275 at 281 (citations omitted). However, the Third Circuit previously held that a debt collector violated the FDCPA when it sent an envelope printed with the debtor’s internal account number, finding that this type of “disclosure implicates a core concern animating the FDCPA – the invasion of privacy.” Douglass v. Convergent Outsourcing, 765 F.3d 299, 303 (3d Cir. 2014).
The Western District of Pennsylvania determined, and the Third Circuit agreed, that there was “no meaningful difference between displaying the account number itself and displaying a QR code – scannable by any teenager with a smartphone app – with the number embedded.” DiNaples, 934 F.3d at 278. Both displays implicate the same privacy concerns.
As a threshold question, the Third Circuit considered whether plaintiff had standing to sue – whether she suffered a concrete injury through MRS’s mailing a collection letter in an envelope printed with a QR code that, when scanned, could reveal her status as a debtor. Relying on prior holdings where a printed account number satisfied the injury-in-fact requirement, the court found that plaintiff did have standing. “Disclosure of the debtor’s account number through a QR code, which anyone could easily scan and read, still implicates core privacy concerns.” DiNaples, 934 F.3d at 280. The court rejected defendant’s argument that plaintiff must show that her mail was intercepted and the code was scanned and interpreted. Instead, the court held that the disclosure of an account number is in itself the harm the FDCPA seeks to prevent, and a plaintiff need not show any injury beyond disclosure. Id.