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Lori King v. Capital One Bank (Usa)

November 15, 2012


The opinion of the court was delivered by: Judge Norman K. Moon


Plaintiff Lori King ("Plaintiff") brings this putative class action against Defendants InCharge Debt Solutions ("InCharge") and Capital One Bank (USA), N.A. ("Capital One"), alleging that both defendants violated section 1679b(a)(4) of the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679, et seq. Plaintiff alleges that InCharge, which promotes itself as a non-profit, tax-exempt credit counseling agency whose main purpose is to act on behalf of consumers and their interests, in fact operates as a partner, joint venturer, and/or agent of the very creditors that the consumers were trying to get out from under, including Capital One. Plaintiff also brings numerous other claims solely against InCharge under the CROA and the Fair Debt Collection Practices Act ("FDCPA"), as well as state law claims under Georgia Code § 18-5-3.2*fn1 and Florida Code § 817.801.*fn2 The matter is before the Court on InCharge's motion to dismiss and compel arbitration or in the alternative to strike Plaintiff's class allegations (docket no. 18) and Capital One's motion to dismiss and stay (docket no. 23).

A bench trial on the threshold factual issue of whether Plaintiff signed an agreement obliging her to arbitrate her disputes is scheduled to begin on December 18, 2012. At a hearing on September 24, 2012, I asked counsel to identify any legal issues that could be resolved prior to that trial. After considering counsel's oral arguments and briefs, for the reasons that follow I will grant InCharge's motion to strike Plaintiff's class allegations, but I will defer consideration of Defendants' motions to dismiss and compel arbitration until after the bench trial.


A. InCharge's Credit Counseling Activities

Credit counseling agencies ("CCAs") are organizations that pledge to help debt-troubled individuals avoid personal bankruptcy by developing manageable strategies for coping with large amounts of debt. The chief tool placed at the disposal of CCAs by banks and credit card companies is the debt management plan ("DMP"). Generally, after a debt-troubled consumer contacts a CCA and is directed towards proceeding with a DMP, the CCA contacts the consumer's creditors and submits a DMP proposal based on criteria previously provided by the creditors. Upon acceptance by all or some of the consumer's creditors, the consumer typically makes a single monthly payment directly to the CCA. The CCA then deposits the consumer's monthly payment into a trust account from which it forwards monthly payments to each of the consumer's creditors in an amount determined by the DMP (as dictated by the creditors).

The principal service that InCharge offered consumers was the formation and maintenance of a DMP. InCharge told consumers that when developing DMPs, it would negotiate on their behalf with their banks and credit card lenders with the ostensible benefits being the potential elimination of late and over-the-limit fees and the re-aging of credit accounts. InCharge offered these services for the express purpose of improving consumers' credit records, histories, and/or ratings. Plaintiff maintains that by providing such services, InCharge brought itself within the coverage of the CROA.*fn3 Additionally, Plaintiff claims that InCharge used its ostensible non-profit, tax-exempt status in its advertising materials, telling consumers that it needed their voluntary "contributions" (i.e. fees), which InCharge expressly (though falsely) asserted would merely cover the cost of establishing the consumers' DMPs.

B. InCharge's Relationship with Capital One

Plaintiff alleges that at all pertinent times, Capital One knew about InCharge's false representations. More specifically, Plaintiff alleges that Capital One knew that there were no "negotiations" being conducted between it and InCharge and that the "benefits" being offered by InCharge were actually pre-set by Capital One and dictated to InCharge in the form of periodic benefits sheets that Capital One unilaterally changed from time to time. Further, Capital One knew from its reviews and audits of InCharge's policies that InCharge was not operating in a manner consistent with its non-profit status. Significantly, Plaintiff also alleges that the reduction of interest rates, the re-aging of accounts, and the waiver of fees were all "benefits" that were exclusively under the control of Capital One. Thus, according to Plaintiff, Capital One entirely controlled the product that InCharge was effectively selling to consumers. Moreover, Capital One exercised control over InCharge's policies by conditioning its tens of millions of dollars of support on InCharge's compliance with Capital One's directives.

According to Plaintiff, the benefits to Capital One from having InCharge perform this role included, among other things: (1) improved collection rates from having a friendly "nonprofit" induce consumers into continuing to make payments; (2) lessening of Capital One's collection costs by inducing consumers to pay "voluntary contributions" to support the "nonprofit" InCharge; (3) the ability to claim Community Reinvestment Act credits for its "donations" to InCharge (which were actually booked as ordinary fee-for-service business expenses and treated that way on Capital One's tax returns); and (4) immunization of Capital One from existing regulations such as the CROA and the FDCPA by having a layer of protection between it and consumers.

In the end, Plaintiff alleges that InCharge is nothing more than a debt collector that has partnered with Capital One to collect its accounts under the guise of a non-profit good Samaritan rescuing consumers from their debt. Instead of operating a non-profit entity, Plaintiff alleges, InCharge distributed the monthly payments it collected from consumers to Capital One while also keeping a share for itself. The share kept by InCharge effectively functioned as a quid pro quo payment from Capital One. Such payment, known in industry parlance as "fair share," was hidden from consumers, who were informed only that their creditors might make charitable "contributions" to InCharge. According to Plaintiff, creditors like Capital One are willing to share debt collection proceeds in the form of "fair share" because the amount they end up remitting is much less than the 25%-33% that is standard payment to ordinary collection agencies. Plaintiff alleges that Capital One paid InCharge tens of millions of dollars in "fair share." In addition, Plaintiff maintains that the "voluntary contributions" that InCharge requested from consumers far exceeded the costs of the services it rendered and that, contrary to its non-profit status, InCharge kept these fees rather than returning the money or lowering DMP prices. Ultimately, Plaintiff alleges that InCharge deceived and cheated consumers, and that Capital One was a direct or at least an indirect cause of (as well as one of the biggest beneficiaries of) the fraud.

C. The Representative Plaintiff

Plaintiff Lori King, a Georgia resident, contacted InCharge by phone in the fall of 2007. She established with InCharge a DMP that included two Capital One credit card accounts. InCharge collected what was denominated a "contribution," but which was in fact a setup fee in the amount of $49, the maximum setup fee permitted by Georgia law. Thereafter, InCharge collected a $49 monthly fee from Plaintiff. Both fees were assessed and received by InCharge before performing any services for Plaintiff, allegedly in violation of the CROA.

Plaintiff continued to pay InCharge for its DMP service at least through the filing of this action, and Capital One received monthly payments from Plaintiff until 2011. Plaintiff alleges that she received no counseling from InCharge. She states further that InCharge represented to her that her DMP would be paid in full in 2 1/2 years; however, after making payments to InCharge for 3 1/2 years, Plaintiff still owed money to her creditors. Plaintiff alleges that InCharge violated the CROA by failing to provide Plaintiff or any of its other clients with DMP contracts, mandatory pre-contract disclosures, or a "cooling off period."

Finally, Plaintiff argues that Defendants should be equitably estopped from relying upon the statute of limitations or, alternatively, that the doctrine of equitable tolling should apply to bar Defendants from relying on any statute of limitations. According to Plaintiff, neither she nor any members of the classes described below had any way of knowing that InCharge was really a commercial enterprise, an agent of Capital One, or the recipient of tens of millions of dollars in financial support from Capital One on a quid pro quo basis. Similarly, Plaintiff contends that she and others similarly situated had no way of knowing that InCharge was not actually negotiating with creditors like Capital One, and that InCharge and Capital One acted as if they were partners.

D. Class Allegations

Plaintiff alleges that InCharge has had hundreds of thousands of DMP clients, of which a substantial subset had Capital One accounts. Correspondingly, she outlines two distinct but overlapping classes and one-sub-class: x Class 1 (the "Capital One Class") consists of all consumers who were indebted to Capital

One and who contracted for DMP services from InCharge; and x Class 2 (the "InCharge Class") consists of all consumers who entered into a DMP with


o Subclass 1 consists of all Georgia residents from whom InCharge accepted charges, fees, contributions, or a combination thereof and for whom InCharge failed to disburse to creditors all payments within thirty days of receipt of such funds.

Plaintiff estimates that there are over 200,000 members of the InCharge Class and at least 30,000 members of the Capital One Class. Thus, joining the individual members of the putative class, Plaintiff contends, would be impracticable.

Additionally, Plaintiff submits that issues of law and fact that are common to the members of the classes predominate over the questions affecting the individual members of the classes, including Plaintiff. Plaintiff also asserts that her claims are typical of the claims of the class members. Plaintiff concedes that the specific amounts of the fees paid by each of InCharge's customers may differ depending on the amount of an individual customer's overall debt, the number of months the customer was on her DMP, and the number of accounts that the customer entrusted to InCharge for servicing. Plaintiff nonetheless suggests that the damages suffered by each of the members of the classes will be calculable under a single formula-the total amount of fees the customer paid to InCharge. Individual claims in this case would probably be insufficient in amount to support individual actions; therefore, Plaintiff submits that class certification would allow actual litigation of the claims. In addition, individual class members are unlikely to be aware of their rights and are thus not in a position to commence individual litigation against Defendants. Finally, Plaintiff represents that she is not burdened by conflicts with ...

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