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D.C. Circuit’s Ruling May Provide Some Potential Relief for the Consumer Financial Services Industry

May 11, 2018 | by Caren D. Enloe

In March, the D.C. Circuit issued its long-awaited decision on the FCC’s 2015 TCPA Declaratory Ruling.  ACA International v. Federal Communications Commission, No. 15-1211 (Mar. 16, 2018).  The ruling invalidates the FCC’s definition of an automated telephone dialing system (“ATDS”) and sets aside the FCC’s ruling on reassigned numbers.  The ruling, however, upholds the FCC’s determination that consent can be revoked by any reasonable means.

The 2015 Declaratory Ruling.

In July of 2015, the FCC issued its highly controversial ruling on 21 petitions seeking review of various aspects of the Telephone Consumer Protection Act (the “TCPA”).  In the Matter of Rules & Regulations Implementing the Telephone Consumer Protection Act of 1991, Declaratory Ruling & Order, 30 FCC Rcd, 7961 (2015) (“Order”).  Two commissioners issued impassioned dissents, noting that the Order “expands the TCPA’s reach” and “twists the law’s words…to target useful communications between legitimate businesses and their customers.”  Dissenting Statement of Commissioner Ajit Pai.  Immediately following the ruling, ACA International, a major trade group for the collection industry, filed suit against the FCC in the United States Court of Appeals for the D.C. Circuit seeking a judicial review of the Order.

While the D.C. Circuit’s review focused on four aspects of the FCC Ruling, this post will limit itself to an examination of the three aspects most relevant to the consumer financial services industry. Before discussing the D.C. Circuit’s holding, here is a reminder of the FCC’s Ruling on the relevant issues:

  • The Definition of an ATDS. The FCC Ruling rejected any “present use” or current capacity test.  The FCC held that capacity of an autodialer is not limited to its current configuration and includes its potential functionalities even if it currently lacks the requisite software. Thus, the FCC affirmed that “dialing equipment that has the capacity to store or produce, and dial random or sequential numbers… [is an autodialer] even if it is not presently used for that purpose.” Order at ¶ 10 (emphasis supplied).  The Order further confirmed the majority’s focus on whether the equipment can dial without human intervention and whether it can “dial thousands of numbers in a short period of time”.  at ¶ 17.  The dissent was highly critical of the majority’s holding, particularly as it related to capacity, its statutory interpretation of capacity, and the TCPA’s potential application to smartphones. As noted by the dissent, if a system cannot store or produce telephone numbers to be called using a random or sequential number generator and it if cannot dial such numbers, it should not be included. Commissioner (and now chair of the FCC) Pai described the majority’s test as being “whether there is “more than a theoretical potential that the equipment could be modified to satisfy the ‘autodialer’ definition.  Pai Dissent.
  • Reassigned Numbers. The FCC Ruling addressed the question of where and when a caller violates the TCPA by placing a call to a wireless number which has been reassigned from a consenting party to a third party without the caller’s consent. The FCC refused to put any burden on the wrong number consumer to inform the caller that it is the wrong party or opt out of the calls.  Instead, the FCC established a one-call safe harbor stating that “where a caller believes he has consent to make a call and does not discover that a wireless number has been reassigned prior to making or initiating a call to that number for the first time after reassignment, liability should not attach for that first call, but the caller is liable for any calls thereafter.”  at ¶85.
  • Revocation of Consent. The FCC Ruling also clarified the ways in which a consenting party may revoke his consent to receive auto-dialed calls. Pursuant to the Ruling consent generally may be revoked through any reasonable means and the caller may not dictate how revocation may be made.  The FCC therefore held that “the consumer may revoke his or her consent in any reasonable manner that clearly expresses his or her desire not to receive further calls, and that the consumer is not limited to using only a revocation method that the caller has established as one that it will accept.”  at ¶ 70.  Consent must be given by either the current subscriber or the non-subscriber customary user of the phone.

The D.C. Circuit’s Ruling.

The Definition of an ATDS.

Under the TCPA, an ATDS is defined as “equipment which has the capacity- (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  47 U.S.C. §227(a)(1). Breaking down the definition, the Court looked at two questions. First, when does a device have the “capacity” to perform the two enumerated functions (to store and dial numbers) and second, what precisely are those functions. ACA International, Slip Op. at 12. The Court held that the FCC’s efforts to clarify what equipment qualifies as an ATDS provided an “eyepopping sweep” and the Court set it aside. ACA International, Slip Op. at 16.

Regarding when a device has the capacity to store and dial numbers, the court was highly critical of the FCC’s expansive interpretation of “capacity”, noting that it was incompatible with the statute’s original concern – telemarketing calls. The Court was particularly troubled by the Order’s inescapable conclusion that “all smartphones, under the Commission’s approach, meet the statutory definition of an autodialer.” The Court concluded that the TCPA cannot be reasonably read to render every smartphone an ATDS subject to the TCPA’s restrictions. Id. At 15-17.  Applying a Chevron analysis, the court held that the FCC’s definition was arbitrary and capricious and lay beyond the FCC’s zone of delegated authority. The Court concluded that “[n]othing in the TCPA countenances concluding that Congress could have contemplated the applicability of the statute’s restrictions to the most commonplace phone device used every day by the overwhelming majority of Americans.”  Id. at 19.

The Court next reviewed the FCC’s treatment of what functions must be present to constitute an ATDS.  Looking to the TCPA, the Court noted that to constitute an ATDS, a device must have the capacity to perform two functions: (a) to store or produce numbers to be called using a random or sequential number generator, and (b) to dial such numbers. The Court determined that the FCC’s efforts fell short of reasoned decision making, offering no meaningful guidance to affected parties. As examples of why the FCC Ruling failed to satisfy the requirement of reasoned decision making, the Court noted the two conflicting positions taken by the FCC as to what functionalities are necessary for a device to qualify as an ATDS, noting that at certain places in the Order, the FCC takes the position that a device qualifies as an ATDS only if it can generate random or sequential numbers to be dialed while in others, the FCC stated that a device qualifies as an ATDS even if it lacks that capacity. The Court also noted that the FCC Order was unclear as to whether other certain referenced capabilities (for instance, dialing without human intervention) are necessary for a dialer to qualify as an ATDS.

What Next? The Court’s refusal to sustain the Order’s definition of an ATDS invalidates one of the most disturbing aspects of the 2015 Order but what does it mean for collection agencies and others who use ATDS to make non-telemarketing calls? Absent further rulemaking from the FCC, it will leave the issue open for judicial interpretation and we are likely to see additional litigation seeking to examine equipment on a device by device basis. The Court’s decision contains some language which may prove helpful to the industry on the issue of what constitutes an ATDS – particularly its parsing of the issue as to functionality and the distinction drawn between the ability to generate random or sequential numbers and the ability to call from a database of numbers generated elsewhere. It is likely that we will see this definition delved into in litigation to a further degree than previously seen.

Reassigned Numbers.

Regarding reassigned numbers, the court determined the FCC’s one call safe harbor was arbitrary and set it aside. The Court’s ruling was premised in large part upon the FCC’s own interpretation of the TCPA as allowing a caller’s reasonable reliance on prior express consent. Recognizing that a caller’s reasonable reliance might not cease after one call or text message (for instance, when the recipient does not answer or provide any indication of reassignment), the Court held that there was no reasonable basis for the FCC to conclude that reasonable reliance would cease after the first call. “Having embraced an interpretation of the statutory phrase ‘prior express consent’ grounded in conceptions of reasonable reliance, the Commission needed to give some reasoned (and reasonable) explanation of why the safe harbor stopped at the seemingly arbitrary point of a single call or message.” Id. at 38. Importantly, the Court further held that the FCC’s failure regarding the one call safe harbor requires that the Court set aside its treatment of reassigned numbers generally. As a result, the Court also set aside the FCC’s interpretation of a “called party” as referring to a new subscriber because to leave it in place would in turn “mean that a caller is strictly liable for all calls made to the reassigned number, even if she has no knowledge of the reassignment.”  Id. at 39.

What Next? While setting aside the FCC Ruling, the Court also signaled its agreement with other circuits (notably the Seventh and Eleventh) that the “called party” for purpose of the TCPA is intended to be the current subscriber. The Court also seemingly embraced the reasonable reliance on prior express consent position espoused by the FCC. As a result, it is likely we can anticipate a ramp-up in reassigned number litigation centering around who is the “called party” and what constitutes reasonable reliance on prior express consent provided by the previous subscriber. At the same time, the FCC (under new leadership) is already seeking to address the issue of reassigned numbers by looking at mechanisms to address the issue, including a repository of reassigned numbers. In re Advanced Methods to Target and Eliminate Unlawful Robocalls, Second Notice of Inquiry, 32 FCC Rcd. 6007. 6010 (2017).

Revocation of Consent.  As noted above, the Court sustained the FCC’s ruling that consent can be revoked through any reasonable means that clearly expresses a desire not to receive further messages.  Of note, the Court made clear that the FCC Ruling did not address revocation rules mutually adopted by contracting parties.  “Nothing in the Commission’s order thus should be understood to speak to parties’ ability to agree upon revocation procedures.” Id. at 43.

What Next?  Based upon the court’s clarification as to mutually adopted revocation rules, affected parties may wish to consider incorporating revocation procedures in their contracts with specific mechanisms for consumers to indicate their consent.  Based upon the Court’s ruling, affected parties should also continue to implement policies and procedures for recording revocations of consent.

Caren Enloe is a partner who concentrates her practice in consumer financial services litigation and compliance, bankruptcy, and commercial litigation with an emphasis on creditor’s rights. She has a deep understanding of the complex compliance environment surrounding the financial services industry and regularly advises financial service companies on licensing and compliance issues involving state and federal consumer protection and finance statutes. Caren is the author of a daily blog titled: Consumer Financial Services Litigation and Compliance where she posts timely and informative updates regarding the CFPB, FTC, and a host of topical litigation issues involving consumer protection law....LEARN MORE

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