Clearing up TCPA confusion

Auto financiers might finally see a slowdown in lawsuits related to the Telephone Consumer Protection Act, thanks to a pair of recent decisions that narrow the definition of an autodialer.

In a nutshell, the TCPA governs the use of automatic telephone dialing systems (ATDS) — generally referred to as autodialers — and artificial or prerecorded voice messages. Congress enacted the TCPA in 1991, when cell phones were scarce, text messages unheard of, and dialing technology primitive. The act has since been amended by the Federal Communications Commission. Notably, a 2015 FCC ruling expanded the definition of an autodialer to include any device with “potential” capacity to store and dial numbers. With that definition, the TCPA became a magnet for lawsuits, since most mobile phones could be considered autodialers. In the past few years, American Honda Finance, GM Financial, Santander Consumer USA, TD Auto Finance and others have been sued for TCPA claims related to their auto finance businesses.

A 2018 legal decision added fuel to the fire, broadening the definition of an autodialer by ruling that companies can face TCPA liability for automated calls and texts to specific numbers stored in a database. Simply put, an autodialer only needed to have the capacity to store and dial phone numbers — even if that “capacity” required additional software or reconstruction of the equipment. With industry response mounting, the FCC reopened a comment period to allow the public to weigh in on the definition of an ATDS, with the goal of redefining TCPA guidelines. Although the comment period has long since ended — with consumers, financial organizations and consumer representatives submitting hundreds of thousands of comments — the FCC has yet to issue any further guidance on what constitutes an ATDS under the TCPA.

While the FCC mulls a modernized TCPA standard, a couple of court decisions in the past month have reined in the definition of an autodialer. On Jan. 27, the Eleventh Circuit Court of Appeals ruled that an ATDS only includes equipment that dials randomly or sequentially; it excludes telephone systems that call from stored lists. The result: most modern autodialers are no longer governed by the TCPA. Last week, the Seventh Circuit Court of Appeals concluded that a device governed by TCPA must be capable of storing or producing telephone numbers using a random or sequential number generator. As such, it would exclude calls or texts that are automatically dialed from a stored database of phone numbers. By narrowing the definition of an autodialer, lenders would be better protected from TCPA claims.

A third case — a class-action involving Flagship Credit Acceptance — may help lenders in another way. The case calls into question the efforts of plaintiffs’ attorneys to thoroughly investigate TCPA violation claims and ensure that class members are fairly compensated. Earlier this month, Judge Michael Baylson denied the $4 million settlement proposal reached by the two sides. He noted that “there are insufficient details to allow the court to conclude that this settlement is fair and reasonable.” He also expressed “concern” about the “very large amount of attorneys’ fees being sought as a percentage of recovery, compared to the anticipated net return to each class member who filed a claim.”

As spelled out in the proposal, the plaintiffs’ law firm would receive $1.3 million — one-third of the settlement fund — while class members would receive about $35 each. To be fair, a comparative analysis of a dozen TCPA cases outlined in a Feb. 13 court filing related to the case illustrates an average 26.5% payout to plaintiffs’ lawyers. Yet the payment to class members in those cases averaged $82.

Among recent TCPA cases in the auto finance sector, Wells Fargo and Nissan Motor Acceptance Corp. agreed to $17 million and $2.2 million settlements, respectively. Based on a class of 440,000 people — the number outlined in court filings — the Wells Fargo settlement translated to about $38 per class member, whereas the NMAC case paid out about $75 per class member. In December 2018, two Florida dealerships reached $5 million settlements for claims of TCPA violations. In those cases, class members were approved to receive about $180 each.

For now, lenders must keep up their guard when it comes to TCPA precautions. They should review the messages the company is sending, with a clear understanding of how and to whom they are being delivered. They must develop standard consents, create databases to track contacts, monitor withdrawals of consent and identify when contact information becomes stale.

But stay tuned for the outcome of the Flagship case, which could deter plaintiffs’ attorneys — and whether future TCPA rulings follow the Seventh and Eleventh Circuit Court decisions. Should the FCC’s definition of an autodialer match the rulings laid out in those cases, other TCPA appeals could fall by the wayside.