A Massachusetts federal district court has entered a temporary restraining order that blocks the state’s attorney general from enforcing the prohibitions on initiating lawsuits and making collection calls in the AG’s emergency debt collection regulation promulgated on March 26.  The TRO was sought by ACA International, the Association of Credit and Collection Professionals, in its lawsuit seeking to have the court declare the emergency regulation invalid and enjoining the AG from enforcing the regulation.

The emergency regulation, entitled “Unfair and Deceptive Debt Collection Practices During the State of Emergency Caused by COVID-19,” applies to creditors and debt collectors.  Section 35.03 of the regulation makes it an unfair or deceptive act or practice for creditors and debt collectors to engage in various types of activities, including initiating, filing, or threatening to file a new collection lawsuit or initiating, threatening to initiate or acting upon any legal or equitable remedy for the garnishment, seizure, attachment, or withholding of wages, earnings, property, or funds for the payment of debt to a creditor.  Section 35.04 prohibits debt collectors (which includes first-party service providers collecting on behalf of creditors in the creditor’s name) from initiating telephone calls to the debtor’s residence, cellular phone, or other telephone number provided as a personal number.

Among the grounds asserted by ACA in its lawsuit for why the emergency regulation is invalid is that it is a content-based restriction on speech that violates the First Amendment of the U.S. Constitution.  The district court determined that the telephone call ban was a limitation on commercial speech protected by the First Amendment subject to “intermediate scrutiny.”  To satisfy such scrutiny, the AG would need to show that the asserted government interest is substantial, the emergency regulation advances that interest, and the regulation is no more extensive than necessary to serve that interest. The court did not find two of the three government interests invoked by the AG to be substantial: shielding consumers from aggressive debt collection practices that wield undue influence in view of the pandemic and temporarily vouchsafing citizens’ financial wellbeing during the pandemic.  However, for purposes of the TRO motion, the court assumed that the third interest invoked by the AG, protecting residential tranquility while consumers are largely staying at home during the pandemic, to be a significant state interest.

The court went on to conclude that the AG had not shown that the emergency regulation advanced the state’s “residential tranquility” interest or that the restriction on speech imposed by the regulation was not more extensive than necessary.  According to the court, “the best that can be said for the Regulation is it decreases incrementally the number of times that a phone might ring in a debtor’s home with a wanted or unwanted call from one species of debt collectors.”  The court viewed the decrease as “incremental’ because “the prior supplanted regulation had already imposed a limit of two calls per week by debt collectors.”  In addition, the regulation did not insulate consumers from debt collection efforts overall, since certain nonprofits, federal employees, collectors collecting mortgage or tenant debts, and others are exempted from the call ban.  Instead, “it singles out one group [of] debt collectors and imposes a blanket suppression order on their ability to use what they believe is their most effective means of communication, the telephone.”  

The court commented that if the AG meant for the regulation to serve as “a strict-liability ban on all deceptive and misleading collection calls, the Regulation is redundant as that is already the law, both state and federally.”  Pointing to prohibitions on unfair or deceptive acts or practices in the FTC Act, the Massachusetts UDAP statute, and the existing Massachusetts debt collection statute, the district court stated that “I do not believe that the Regulation adds anything to the protections that the existing comprehensive scheme of law and regulation already affords to debtors, other than an unconstitutional ban on one form of communication.”   

ACA also argued that the regulation restricted the right of debt collectors and creditors to “petition the Government for a redress of grievances” by restricting access to the courts in violation of the First Amendment of the U.S. Constitution.  In response, the AG argued that the effect of Section 35.03 “is merely to delay a creditor’s day in court, while temporarily protecting consumers from a method of debt collection that is uniquely threatening under the circumstances of the pandemic.”  The district court agreed with ACA that the regulation created an unconstitutional obstacle to the right of ACA members to access the courts and, citing U.S. Supreme Court precedent, commented that “the mere fact of an emergency does not increase constitutional power, nor diminish constitutional restrictions.”

Having decided that ACA had shown a likelihood of success on its constitutional claims, the district court indicated that a finding of a First Amendment violation obviated the need for ACA to show irreparable harm.  With respect to the balance of equities and the public interest, the court stated that given “the plethora of protection provided to debtors by the laws and regulations the court has previously cited, the interest a debtor may have in the Regulation may not weigh as heavy as the threat of extinction faced by smaller collection agencies who have been effectively put out of business.”  The court also found that “perhaps of greater concern is the impact the Regulation may have on hospitals and utilities who depend on collection agencies to remain solvent.”  In addition, the court stated that it “recognizes the argument advanced by ACA that a capitalist society has a vested interest in the efficient functioning of the credit market which depends in no small degree on the ability to collect debts.

The TRO entered by the court enjoins the AG from enforcing Section 35.04 in its entirety and from enforcing Section 35.03 “in so far as it bars the defined debt collectors from bringing enforcement actions in the state and federal courts of Massachusetts.”