In ACA Int'l v. Healey, No. CV 20-10767-RGS, 2020 WL 2198366 (D. Mass. May 6, 2020), the District Court in Massachusetts struck down the State Attorney General’s emergency ban on debt collection calls and lawsuits during the COVID-19 pandemic, finding that the regulation violated the First Amendment.

On March 26, 2020, Massachusetts’s Attorney General, Maura Healey, issued a regulation titled "Unfair and Deceptive Debt Collection Practices During the State of Emergency Caused by COVID-19."  The regulation, among other things, prohibits debt collectors from initiating telephone calls to collect on a debt and initiating lawsuits to collect on a debt.

ACA International (“ACA”), a trade group made up of members in the credit collection industry, brought suit challenging the regulation and seeking to enjoin enforcement of the regulation.

The Court, when issuing the preliminary injunction, looked at whether the moving party can prevail on the following four factors: (1) whether it is likely to succeed on the merits; (2) whether it is likely to suffer irreparable harm absent the preliminary injunction; (3) whether the balance of equities in its in favor; and (4) whether an injunction is in the public interest.

The Court notes that ACA made a number of arguments related to state law – including that the Attorney General exceeded the authority granted to her under Massachusetts’s law – but declined to weigh in on those state arguments because of the limits of the Eleventh Amendment on sovereign immunity. Thus, the Court focused on ACA’s First Amendment arguments.

Likelihood of Success on the Merits

ACA International had to show that the regulation was content based in violation of the First Amendment.

As the Court notes, “not all speech is created equal.”  In the past, the Supreme Court has made a distinction between “political speech” and “commercial speech.” Commercial speech, which is driven by economic motivations, are afforded “intermediate scrutiny.”  Thus, the Court used the Hudson test.  Under the test, the preliminary question is whether the expression is protected by the First Amendment.  If so, then the following three factors are evaluated: (1) is the asserted governmental interest substantial; (2) does the disputed regulation advance that governmental interest; and (3) is the regulation no more extensive than necessary to serve the interest.

At the outset, the Court finds that the regulation is an outright ban on a particular speech (e.g. complete band of telephone communications to collect on payment of a debt), and thus is speech protected by the First Amendment.

The Court then turns to the remaining three factors of the Hudson test.

Substantial government interest

The Attorney General argues that there is substantial government interest to (1) protect consumers from debt collectors that “wield undue influence in view of the coronavirus”; (2) protect the tranquility of the home while consumers are stuck inside and (3) protect consumer’s well-being during the pandemic.

The Court did not find any of the government’s interests to be persuasive.  There was no evidence that consumers are more susceptible to undue influence by debt collectors during the pandemic. Nor was there evidence that a debt collector is more likely to chase the consumer down in person. As to the argument regarding a consumer’s well-being, the Court notes that the regulation simply provides relief for unwanted phone calls and does not actually offer any relief from the debt itself.

Does the disputed regulation advance governmental interest

The Court notes that there may be government interest in residential privacy and assuming that such a purpose is sufficiently a significant state interest then it turns to the third factor of the Hudson test.

Regulation is no more extensive than necessary to serve government interest

Here, the Court finds that the regulation goes beyond the bounds necessary to achieve the government interest.  At most, the regulation would only “incrementally” decrease the number of calls because prior legislation already limits two calls per week by debt collectors.

The regulation, the Court noted, does not protect residential inhabitants for all debt collection efforts, but rather “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.”  Moreover, the Court notes that if it was the Attorney General’s intent to ban deceptive or misleading debt collection calls, then there are currently sufficient state and federal laws in place to address that goal.  Specifically, statues like the Federal Fair Debt Collection Practices Act (FDCPA), Telephone Consumer Protection Act (“TCPA”) and Massachusetts’s own unfair debt collection statutes already provide the protection sought.

In addition to debt collection calls, the Court also agreed that the ban on debt collection lawsuits was unlawful.  One of the fundamental rights of the first amendment is the people to “petition the Government for a redress of grievances” and access to courts have almost been one of the most important liberties of the U.S. Constitution.  Moreover, such a right is not diminished even in a state of emergency.

Irreparable Harm; Balance of Equities and Public Interest

Because likelihood of success on the merits of the First Amendment claim has been established, irreparable harm is assumed as a result of the deprivation of right.

As to the balance of equities and public interest, given the current regulations (FDCPA, TCPA and state related statues) a debtor has less interest in the regulation as the threat of extinction of similar collection agencies who have been put out of business.

Finally, the Court notes “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.”