(Before reading this post, please review my Legal Disclaimer.)
Today an article in the L.A. Times about a change to Capital One’s credit card terms and conditions has been making the rounds of social media. Per the article, Capital One has inserted language giving itself permission to visit cardholders at their homes or places of employment with regard to their accounts and to modify or suppress the way in which its calls display on cardholders’ caller ID systems. The article left unsaid (but clearly implied) that most likely Capital One would do one or the other of these things in the context of attempting to collect on delinquent accounts.
While a spokesperson for Capital One sought to reassure cardholders and the general public that they had no intention of sending representatives out to find them and no intention of spoofing caller ID systems, the language itself sounds alarming. The contract language raises a good question: Just what can a bank like Capital One do to collect a debt?
The L.A. Times article dispatches one issue very quickly: the provision allowing Capital One to visit you at your home or place of employment almost certainly does not violate the 4th Amendment to the U.S. Constitution. That amendment has to do with unreasonable search and seizure at the hands of law enforcement. Capital One is not law enforcement, so this language doesn’t raise a 4th Amendment claim. Just as A&E can fire Phil Robertson from Duck Dynasty for what he says without it raising a 1st Amendment claim, Capital One can ring your doorbell to collect a debt without raising a 4th Amendment claim.
Depending, however, on the way Capital One went about visiting you personally, or the frequency with which they did so, their actions could potentially violate other state or federal laws regarding invasion of privacy, harassment, or debt collection. If Capital One did decide to use more confrontational (and potentially deceptive) collection tactics, though, they could at a minimum face greater regulatory scrutiny. In recent years, bank regulators (including the Office of the Comptroller of the Currency, or OCC, the regulator with oversight over Capital One and other national banks) have taken a greater interest in what they call “reputational problems” with banks—a general phrase for anything that erodes consumer and public trust in the fairness and stability of the banking system. Back in September 2013 I wrote about (http://briancubbage.com/2013/09/20/chases-collection-debt-sales-reined-in-by-regulators/) a consent order entered into by the OCC and Chase Bank that made waves in the world of consumer credit and debt collection. Citing, among others, reputational problems arising from Chase’s practices of suing consumers over delinquent credit card debt and sales of delinquent debt to third-party debt buyers, the OCC got Chase to agree to do greater due diligence to ensure that their accounts would end up in collection litigation or in the hands of others who would use dubious collection tactics. Sending out hired goons to a cardholder’s house, if it made the papers (which is likely enough), would be just the sort of reputational problem that would get regulators’ attention—and Capital One certainly knows it.
Of course, the simplest way around all of the negative press would have been to avoid putting clauses like these into their credit card contracts to begin with. I am mystified by why Capital One would include such contractual provisions if it had no intention of invoking them. Generally, all of the fine print in the terms and conditions of a credit card account is there for some reason, including those lengthy arbitration agreements. Credit card companies certainly use those, most notably as a tool to defeat class action litigation, even though binding arbitration has a history of scandals and is currently under scrutiny by the Consumer Financial Protection Bureau (CFPB). Capital One must think there is some benefit to them from having these new clauses in their credit card terms. I am just hard pressed to know what the benefit could be.
All of this raises the question: Would visiting cardholders in person and taking measures to defeat caller ID systems be illegal under consumer protection and debt collection laws? The answer is probably, it depends on where you live. There is a federal law—the Fair Debt Collection Practices Act, or FDCPA, 15 U.S.C. §1692 et seq.—that limits debt collection activity. All of the potential collection activity under discussion here would, if done by, for instance, a collection agency, probably violate the FDCPA. However, the FDCPA does not cover the collection activity of original creditors who are attempting to collect their own debts; they are specifically exempted under 15 U.S.C. §1692a(6)(A). The only exception to this rule is if an original creditor is collecting debts using another name than their usual name “which would indicate that a third person is collecting or attempting to collect” a debt (§1692a(6)). So, if Capital One did directly employ collection agents who went to your house to collect, their (mis)conduct would not be actionable under the FDCPA.
For the same reasons, it wouldn’t be an FDCPA violation for Capital One to modify or suppress the caller ID information of its in-house collection staff. There is a separate law, the Truth in Caller ID Act of 2009 (TCIA), that prohibits “any person” (including corporations) from “caus[ing] any caller identification service to knowingly transmit misleading or inaccurate caller identification information with the intent to defraud, cause harm, or wrongfully obtain anything of value.” The question, though, is whether a bank who transmits misleading caller ID information while attempting to collect a cardholder’s debt is “intending to defraud, cause harm, or wrongfully obtain anything of value.” If they could show that they had a legitimate interest in reaching the consumer to collect a debt and that their caller ID spoofing did not cause harm, they could probably avoid claims under that act. For instance, the U.S. Court of Appeals for the Fifth Circuit found in 2012 (in Teltech Systems, Incorporated et al. v. Phil Bryant et al., 702 F.3d 232) that Mississippi’s Caller ID Anti-Spoofing Act was preempted by the federal TCIA because the Mississippi law did not allow for what the opinion called “non-harmful spoofing.” While the non-harmful spoofing envisioned by Congress when enacting the TCIA was in the first instance that potentially undertaken by law enforcement or intelligence agencies of the federal government, private businesses have certainly taken note of the decision.
The answer to whether Capital One could legally use the collection tactics envisioned by its contracts would depend on state collection law. While many states (including Kentucky) have no separate debt-collection law to speak of beyond the FDCPA, many do. Some mirror the FDCPA, while others go significantly beyond it. Interestingly, the L.A. Times, a major California newspaper, fails to mention the fact that California’s Rosenthal Act codifies some of the strongest consumer protections against debt collection abuses in the country– and its strictures extend to anyone who is collecting a debt, even original creditors like banks. California Attorney General Kamala Harris made headlines last May, for instance, by bringing a major case against JPMorgan Chase for alleged Rosenthal Act violations relating to Chase’s collection litigation against California consumers.
While it is not settled whether Capital One’s contract terms would open up the bank to violations of state collection laws, it appears that they plan on moving forward with their plan to keep those terms in place. Stay tuned…