ACA International (ACA), the Association of Credit and Collection Professionals, filed a complaint on April 20, 2020, in the U.S. District Court for the District of Massachusetts challenging the validity of the recently issued Massachusetts debt collection regulation, 940 CMR 35:00, Unfair and Deceptive Debt Collection Practices During the State of Emergency Caused by COVID-19. In addition, ACA was seeking a temporary restraining order and preliminarily injunction enjoining enforcement of the regulation until the court has an opportunity to rule on its validity. On April 21, 2020, U.S. District Judge Richard Stearns issued an order granting ACA's request for an expedited briefing schedule, which will require Massachusetts Attorney General Maura Healey to respond by May 1, 2020. And on April 24, 2020, Judge Stearns issued an order setting a hearing on ACA's motion for a temporary restraining order for April 29, 2020. The lawsuit could have significant implications for creditors and debt collection professionals who do business with Massachusetts residents and for other states who may be contemplating issuing similar debt collection regulations during this and future crises.
The regulation that the Massachusetts Attorney General announced on March 27, 2020, contains two provisions that ACA finds particularly objectionable.
The first provision, 940 CMR 35.04 (Section 35.04), provides that "[f]or the ninety (90) days following the effective date of this regulation or until the State of Emergency Period expires, whichever occurs first, it shall be an unfair or deceptive act or practice for any debt collector to initiate a communication with any debtor via telephone, either in person or by recorded audio message to the debtor's residence, cellular telephone, or other telephone number provided by the debtor as his or her personal telephone number." (emphasis added). The term "debt collector," as defined by the regulation, includes most debt collection professionals, including the following:
940 CMR 35.02. There are a number of exceptions to the prohibition on debt collector communications with debtors, not the least of which is the exception for attempts to collect debt that is "owing as a result of a loan secured by a mortgage on real property" or "owing by a tenant to an owner." 940 CMR 35.04(3). For the most part, however, debt collectors initiating communications via telephone to debtors in Massachusetts risk liability for per se violations of M.G.L. Ch. 93A, which subjects those who engage in "unfair or deceptive act[s] or practice[s]" to damages (up to treble damages), equitable relief, and attorneys' fees.
The second provision, 940 CMR 35.03 (Section 35.03), provides that "[f]or the ninety (90) days following the effective date of this regulation or until the State of Emergency Period expires, whichever occurs first, it is an unfair or deceptive act or practice for any creditor, including a debt collector, to:
a) initiate, file, or threaten to file any new collection lawsuit;
b) initiate, threaten to initiate, or act upon any legal or equitable remedy for the garnishment, seizure, attachment, or withholding of wages, earnings, property or funds for the payment of a debt to a creditor;
c) initiate, threaten to initiate, or act upon any legal or equitable remedy for the repossession of any vehicle;
d) apply for, cause to be served, enforce, or threaten to apply for, cause to be served or enforce any capias warrant;
e) visit or threaten to visit the household of a debtor at any time;
f) visit or threaten to visit the place of employment of a debtor at any time; and
g) confront or communicate in person with a debtor regarding the collection of a debt in any public place at any time."
940 CMR 35.03(1) (emphasis added). As with Section 35.04, there is an exception to Section 35.03's prohibition on initiating collection lawsuits and acting upon legal and equitable remedies available to creditors and debt collectors for attempts to collect debt that is "owing as a result of a loan secured by a mortgage on real property" or "owing by a tenant to an owner." 940 CMR 35.03(2). In the main, however, if a creditor or debt collector wishes to initiate a collection lawsuit or act upon legal or equitable remedies otherwise available in Massachusetts, the creditor or debt collector, again, risks liability for per se violations of M.G.L. Ch. 93A.
ACA challenges the validity of Section 35.04, which prohibits debt collectors from initiating telephone communications with debtors about their debts, primarily on free speech grounds. Under the First Amendment to the U.S. Constitution, which was made applicable to the states by the Fourteenth Amendment,1 "Congress shall make no law . . . abridging the freedom of speech." ACA argues that Section 35.04 is a content-based speech restriction and, as such, the restriction is constitutionally permissible only if it is narrowly tailored to serve a compelling government interest. From ACA's perspective, Section 35.04 is a content-based speech restriction because it does not prohibit debt collectors from initiating telephone calls to debtors regarding the rescheduling of a court appearance,2 mortgage debt3 or debt owed by a tenant.4 Thus, ACA argues, the only way to determine whether a communication violates Section 35.04 is to evaluate its content and who is initiating it.
The Massachusetts Attorney General cannot show that Section 35.04 is narrowly tailored to serve a compelling government interest, ACA asserts, because 1) the existing state and federal debt collection statutes and regulations applicable in Massachusetts, including M.G.L. Ch. 93 § 49, 940 CMR 7.00, the Fair Debt Collections Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA), already protect Massachusetts debtors from unfair and deceptive debt collection practices and 2) Section 35.04 actually prohibits creditor communications that could be, and frequently are, helpful to debtors in resolving their debts without resorting to costly and time-consuming litigation. In ACA's view, Section 35.04 is clearly overly broad and cannot pass constitutional muster under the applicable standard of review — strict scrutiny.5, 6
ACA challenges the validity of Section 35.03, which prohibits creditors, including debt collectors, from initiating collection lawsuits and acting upon legal and equitable remedies otherwise available in Massachusetts, primarily on separation of powers grounds. Article XXX of Part I of the Massachusetts Constitution provides that "the executive shall never exercise the legislative and judicial powers, or either of them." In issuing Section 35.03, ACA argues, the Massachusetts Attorney General has done just that. In its motion for a preliminary injunction, ACA asserts that, in closing the courthouse doors to certain creditors and debt collectors when the Massachusetts courts are otherwise open to those entities, the Massachusetts Attorney General has usurped the power of the judicial branch of Massachusetts government. ACA was also keen to note in its motion, which was filed in federal court and will be decided by a federal judge, that Section 35.03 interferes with not only Massachusetts courts, but federal courts as well. Section 35.03, as ACA stresses in its motion, alters the jurisdiction of federal courts by barring certain disfavored creditors and debt collectors from filing new federal lawsuits.
ACA argues that Section 35.03 violates the Massachusetts Constitution, but it does not stop there. ACA also argues that, by making it illegal for creditors and debt collectors to seeks redress in courts of law, Section 35.03 violates the First Amendment to the U.S. Constitution. Under the First Amendment, which applies to state action through operation of the Fourteenth Amendment, "Congress shall make no law . . . abridging . . . the right of the people . . . to petition the Government for a redress of grievances." From ACA's perspective, when the Massachusetts Attorney General deemed the filling of petitions in courts of competent jurisdiction and the carrying out of court-authorized relief to be unfair or deceptive acts or practices, she impermissibly encroached on the immunity afforded to such actions by the First Amendment.
The implications ACA's lawsuit against the Massachusetts Attorney General could be significant. If the court finds that Section 35.04, Section 35.03 or both, violate either the Massachusetts or the U.S. Constitution, creditors and debt collectors will be able to begin operating in Massachusetts as they are in other states. Further, a ruling invalidating Massachusetts' new debt collection regulation could curb the enthusiasm of other states considering similar regulations during this crisis and those to come. If states see a federal court striking down Massachusetts' debt collection regulation as a violation of the First Amendment to the U.S. Constitution or even as a violation of the separation of powers clause in the Massachusetts Constitution — a clause that is commonly found in other state constitutions throughout the United States — they may be far more reluctant to adopt similar laws and regulations. If, however, the court upholds the regulation, debt collectors will have to abide by its terms when operating in Massachusetts and potentially alter their collection practices in other states should those states be embolden by the court's ruling and elect to adopt similar regulations.
Holland & Knight will continue to monitor the litigation concerning the validity of the recently issued Massachusetts debt collection regulation and keep clients abreast of any meaningful developments. If you have questions about the Massachusetts debt collection regulation or the implications of the current litigation concerning its validity, Holland & Knight's Consumer Protection Defense and Compliance Team and Financial Services Regulatory Team can provide additional information. The teams are comprised of individuals with extensive experience advising credit and collection professionals and handling debt collection inquiries and investigations initiated by the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB) and state attorneys general. Please contact the authors with any questions.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this alert for timely advice.
1 See Gitlow v. People of State of New York, 268 U.S. 652, 666 (1925).
2 940 CMR 35.04(2).
3 940 CMR 35.04(3).
4 940 CMR 35.04(3).
5 Reed v. Town of Gilbert, Ariz., 135 S.Ct. 2218, 2227 (2015) ("[L]aws that cannot be justified without reference to the content of the regulated speech, or that were adopted by the government because of disagreement with the message [the speech] conveys, like those that are content based on their face, must also satisfy strict scrutiny.") (internal quotation marks and citation omitted).
6 ACA also argues that, even if the court finds that Section 35.04 is not a content-based speech restriction, and is, thus, subject only to an "intermediate standard of review," Section 35.04 is still constitutionally impermissible because it fails to "serve a substantial state interest and is [not] designed in a reasonable way to accomplish that end." Edenfield v. Fane, 507 U.S. 761, 768-69 (1993).
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