CURRENT MONTH (February 2025)
Business Crimes & Corporate Compliance
Corporate Transparency Act Update: Most Beneficial Ownership Information Filings Are Now Mandatory, but the Filing Deadlines Are Uncertain
By William E. H. Quick, Polsinelli PC
Visit Business Law Today’s February 2025 in Brief: Corporations, LLCs & Partnerships to read the full update on the Corporate Transparency Act.
Consumer Finance
The Earned Wage Access Boom: Sixteen States Propose Legislation to Regulate These Types of Products
By Rachael Aspery and Aaron Kouhoupt, McGlinchey Stafford PLLC
Since the beginning of 2025, sixteen states have proposed legislation to regulate earned wage access. These states would join Kansas, Missouri, Nevada, South Carolina, and Wisconsin, which have each enacted legislation to regulate advances of funds so employees can access their funds before payday.
Generally, these bills aim to regulate providers of direct-to-consumer or employer-integrated wage access service. Earned wage access is generally defined as advances that are based on a consumer’s earned but unpaid wages. The proposed bills exacerbate the current lack of consistency in the earned wage space, as some states consider the product a “loan” while other states expressly exclude the product from their state’s definition of “loan.” In addition to proposing substantive requirements, these products vary in treatment of common fees such as voluntary tipping and expedited transfer fees. States have also proposed licensing or registration regimes for providers of earned wage access.
The following states have introduced earned wage access legislation:
- Arizona SB 1582
- Colorado HB 1020
- Connecticut HB 5007
- Indiana HB 1125
- Maryland HB 1294
- Mississippi HB 1307 / SB 2496
- Missouri HB 576 / SB 293 / HB 1113
- New Mexico HB 59
- New York AB 258 / AB 682
- North Dakota HB 1393
- Oklahoma HB 2086 / SB 781:
- Oregon HB 2131 / SB 481
- Texas SB 938 / HB 2043
- Utah HB 279
- Vermont HB 99
- Washington HB 1063
It is fair to say that the boom of legislation in the earned wage access space arose as the result of the Consumer Financial Protection Bureau’s Proposed Interpretive Rule from July 2024 that categorizes earned wage access products as “credit” subject to the substantive obligations under the federal Truth in Lending Act and Regulation Z. The continued lack of consistency from state to state, and potentially between state and federal obligations, creates tension with compliance obligations including but not limited to finance charge treatment and required disclosures.
We will continue to monitor for updates and enactment.
District Court Holds Debt Verification in Response to Consumer’s Letter Refusing to Pay, but Disputing the Debt, Is Not a FDCPA Violation
By Alyssa Lynn Szymczyk, McGlinchey Stafford, PLLC
In Hall v. Cohn, Goldberg & Deutsch, LLC, the U.S. District Court for the District of Maryland rejected a plaintiff’s arguments that a debt collector’s verification of a debt in response to a letter refusing to pay, but disputing the debt, violated the cease communication directive under the Fair Debt Collection Practices Act (“FDCPA”). Instead, the judge found the plaintiff’s letter essentially waived his cease-and-desist rights and granted summary judgment in favor of the defendant.
The defendant sought to collect a debt allegedly owed by the plaintiff. On March 12, 2024, the plaintiff received a letter from the defendant seeking to collect the debt. The plaintiff responded on March 18 by letter, stating, “the real kicker is I received and [sic] unwanted letter from you guys Cohn, Goldberg & Deutsch, I’m like what 10,511.29 I don’t remember apply [sic] for credit with a Cohn, Goldberg & Deutsch; I’m unwilling to pay this debt!!! I decline to pay this debt.” In response, the defendant wrote the plaintiff on March 28 stating it was responding to the plaintiff’s debt amount dispute letter and attached copies of the most recent statements prior to charge off as well as the account transaction history. The letter also stated that their client had verified the remaining amount of the debt. The defendant had no further communication with the plaintiff regarding the debt.
The plaintiff alleged that the defendant’s March 28 letter violated § 1692c(c) of the FDCPA by failing to cease communications with him following his March 18 letter. The defendant filed a motion to dismiss the complaint, or, in the alternative, a motion for summary judgment. The defendant argued its March 28 letter did not violate the FDCPA because the plaintiff waived the FDCPA’s cease communication directive since his March 18 letter disputed and refused to pay the debt.
First, the court looked at § 1692g(b), which provides requirements for a debt collector to verify a debt if the consumer notifies the debt collector in writing within thirty days of receiving notice of the debt that the debt, or any portion thereof, is disputed. The court rejected the plaintiff’s argument that § 1692g(b) does not provide a waiver to the cease communication directive. The court cited several other cases where courts have found that when a consumer directs the debt collector to cease communication but disputes the debt and/or requests verification, the consumer has been deemed to waive any claim under Section 1692c(c) that a subsequent response providing verification violated the consumer’s cease communication directive.
Next, the court rejected the plaintiff’s argument that the statement in his March 18 letter was solely a refusal to pay and a request for cessation of communication. Instead, the court agreed with the defendant that the language of the letter constituted both a dispute and a refusal to pay the debt. The court noted that besides the March 28 debt verification letter, the defendant had not contacted the plaintiff following his March 18 letter for any purpose. The court found that the defendant “did not exceed the lawful, permissible scope of Plaintiff’s waiver” and that the defendant satisfied its obligation under § 1692g(b). The court held that the defendant was entitled to judgment as a matter of law.
The Hall case serves as an important reminder to debt collectors that when a consumer’s correspondence contains both a directive that the debt collector cease communication and a dispute of the debt, a debt collector’s obligations under § 1692g(b) remain, and compliance with these requirements will not rise to the level of a violation of the FDCPA’s “cease communication” directive contained in § 1692c(c).
Fourth Circuit Rules SCRA Does Not Preclude Arbitration
By Jim Sandy, McGlinchey Stafford, PLLC
In a decision with potentially wide-ranging implications, the Fourth Circuit Court of Appeals reversed a district court’s decision to deny a national bank’s motion to compel arbitration, finding that amendments to the Servicemembers Civil Relief Act (“SCRA”) did not override the applicability of the Federal Arbitration Action (“FAA”) to arbitrate claims under the SCRA.
What Happened?
A number of plaintiffs, on behalf of themselves and a putative class of similar individuals, brought suit under the SCRA against a national bank for purportedly charging them interest in excess of what the SCRA permitted under a credit card agreement.
The national bank pointed to an arbitration clause in the credit card agreement that also precluded a class action and sought to compel arbitration under the FAA. The plaintiffs opposed, arguing that Congress intended to preclude arbitration of SCRA claims, and the district court agreed. The National Bank appealed, and on appeal, the Fourth Circuit reversed.
The Court’s Analysis
At the center of this dispute are the 2019 amendments to the SCRA, which stated: “[a]ny person aggrieved by a violation” of the SCRA “may in a civil action . . . be a representative party on behalf of members of a class or be a member of a class, in accordance with the Federal Rules of Civil Procedure, notwithstanding any previous agreement to the contrary.” 50 U.S.C. § 4042(a)(3) (emphasis added). The plaintiffs and district court focused on the highlighted language and found that this precluded arbitration of such claims.
But the Fourth Circuit disagreed. According to the court, only a statute that clearly expresses congressional intention to override the FAA will suffice. This comports with the underlying purpose of the FAA itself, which establishes a “liberal federal policy favoring arbitration agreements.” And, pursuant to Supreme Court precedent, the Fourth Circuit found that the court has never concluded that “a federal statute overrode enforcement of the arbitration agreements under the FAA without explicitly saying so.” In light of this precedent, the Fourth Circuit read the SCRA amendments to:
authorize a person with a claim under the SCRA to file a civil action in federal court and to prosecute that action as a class action under the Federal Rules of Civil Procedure. We conclude that the clause “notwithstanding any previous agreement to the contrary” confirms the authority of persons aggrieved to bring federal class actions despite any previous agreement to the contrary. The language in § 4042(a)(3) thus defines the action that the person aggrieved may bring, but it does not indicate that that person must bring a class action or even must file an action in federal court. The provision is permissive, providing undampened authority to bring a federal class action. More importantly, however, the provision does not prohibit the person from resolving a SCRA claim in another forum, such as the arbitral forum. Indeed, the statute does not even mention arbitration, much less prohibit the enforcement of agreements to arbitrate.
This finding was bolstered by the legislative history surrounding the SCRA itself, where the Fourth Circuit noted that the House-adopted version of the 2020 National Defense Authorization Act did include a provision that would have precluded arbitration of SCRA claims but that this provision was never enacted. Finally, and while reversing on the SCRA claims, the Fourth Circuit also remanded back to the district court to consider the claims brought by the plaintiffs under the Military Lending Act (which, unlike the SCRA, does include an explicit provision prohibiting arbitration of such claims).
What Does This Mean?
Many arbitration agreements carve out claims brought by servicemembers to avoid any potential violations of the SCRA. However, under the Fourth Circuit’s analysis, such claims may, in fact, be subject to binding arbitration, as Congress did not include an express intent to avoid arbitration of such claims as required under Supreme Court precedent.
Seventh Circuit Determines Debt Buyer May Have Acted Negligently When Reporting Previously Disputed Account
By Tyler Hamilton, Pilgrim Christakis LLP
A recent Seventh Circuit decision in Woods v. Security Credit Services, LLC, highlights the duty of debt collectors under the Fair Debt Collection Practices Act (“FDCPA”) to use reasonable care not to report false information.
In 2017, Plaintiff Michael Wood received notice from Pentagon Federal Credit Union (“PenFed”) that he was allegedly delinquent on his credit card payments. Plaintiff sent a letter to PenFed disputing the debt, and PenFed responded with a letter validating the debt. PenFed also requested that Plaintiff set up a payment plan, but neither Plaintiff nor his attorney responded to PenFed’s request. In 2018, PenFed sold a bundle of accounts, including Plaintiff’s debt, to Security Credit Services (“SCS”). PenFed did not provide SCS with Plaintiff’s dispute letter or otherwise inform SCS that Plaintiff had ever disputed the debt. PenFed also informed SCS that it had used commercially reasonable efforts to remove accounts from the bundle that had “unresolved disputes.” SCS did not investigate the history of Plaintiff’s account or his prior dispute, and it reported the account to a credit reporting agency without marking it as disputed.
Plaintiff later filed suit alleging SCS violated § 1692e(8) of the FDCPA by failing to mark the reported account as disputed. The Northern District of Illinois granted summary judgment in SCS’s favor based on its conclusion that PenFed reasonably interpreted Plaintiff’s lack of response to its debt validation letter to mean that Plaintiff no longer disputed the debt. Thus, Plaintiff could not establish SCS knew or should have known that Plaintiff still disputed the debt as required to maintain his FDCPA claim.
On appeal, the Seventh Circuit recognized that FDCPA § 1692e(8) utilizes a negligence standard. Thus, to resolve the FDCPA claim, the appropriate question was whether SCS used reasonable care to obtain information about whether Plaintiff’s account was disputed. The Seventh Circuit concluded that a genuine issue of material fact prevented this question from being resolved on summary judgment. In particular, the Seventh Circuit noted that SCS failed to investigate the history of Plaintiff’s debt after purchasing his account and instead relied on PenFed’s representation, which was based on the fact that Plaintiff did not respond to its prior validation letter, that the account did not have any “unresolved disputes.” The Seventh Circuit explained that SCS’s reliance on this representation was insufficient for purposes of summary judgment, particularly where Plaintiff maintained in his testimony that he continued to dispute the debt. Accordingly, the Seventh Circuit concluded that SCS’s credit reporting could be construed as negligent in violation of the FDCPA.
While the Seventh Circuit’s decision does not resolve the case on its merits, it does emphasize that debt collectors have a duty to investigate accounts they purchase. Importantly, this duty often extends further than simply relying on the representations of sellers, particularly when that party is a creditor not otherwise subject to the FDCPA. A failure to affirmatively act on this duty could later serve as the basis for FDCPA exposure.
