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Compliance Digest – May 2

Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.

I’m thrilled to announce that Applied Innovation has signed on to be the new sponsor of the ARM Compliance Digest. Utilizing over 50 years’ experience in the collections industry and over 75 in technology, Applied Innovation is helping to shape the future of accounts receivable management.

Judge Denies Second Stay Awaiting Release of FCC Rule in TCPA Case

After agreeing to stay the proceedings in a Telephone Consumer Protection Act case pending the outcome of Marks v. Crunch San Diego in the Ninth Circuit Court of Appeals, a District Court judge in Nevada has denied a request from the defendant for a second stay pending the release of a proposed rule from the Federal Communications Commission, because who knows how long it will take for a proposed rule to be issued, finalized and be put into effect.


In Thomas v. Smith-Pollack Associates, the Federal Court in Nevada denied a second “stay” in the litigation pending the issuance by the FCC of rules that would settle the question of whether Defendant’s calling system at issue was an ATDS. Because the FCC has not given guidance as to when such rules would issue, when those rules will become final in light of likely legal challenges, and whether an FCC Decision would definitively resolve all of the ATDS issues in the case, the Court declined to issue the stay because as “there is no end in sight”. This is typical logic used by many federal courts throughout the US when dealing with the issue of whether to impose a stay of a case when a party files a motion for stay. If the Court can find that a stay would be for a specific period of time, because another court or regulatory body is in the throes of definitively resolving an important issue affecting the outcome of a pending case, the Court may stay the action.

In this case, the Court initially stayed the case pending the issuance of the appellate decision in the Marks v. Crunch case. But, since this court opined that an FCC decision favorable to Defendant’s position on the ATDS may never arrive, the Court declined the stay. This is a completely expected result. Federal Judges like to clear their dockets and are discouraged from letting cases linger in their court rooms for sustained periods of time. Federal Judges will not hold cases in abeyance unless doing so is in the interests of justice and expedience.

Appeals Court Affirms Dismissal of FDCPA Letter Suit

The Court of Appeals for the Eighth Circuit has affirmed a lower court’s dismissal of a lawsuit ruling that a defendant did not violate the Fair Debt Collection Practices Act by using a registered DBA and referring to itself as “professional debt collectors” in a collection letter that was signed by an individual who was not licensed to collect debts in the state in which the plaintiff resided.

WHAT IT MEANS, FROM LAUREN VALENZUELA OF PERFORMANT RECOVERY: The 8thCircuit’s straightforward and no-nonsense approach in this case is refreshing! The facts are simple: Credico was a licensed agency and doing business in Minnesota as Credit Collections Bureau. Its name (i.e., “CREDIT-COLLECTIONS-BUREAU”) was in the top right corner of the letter and several lines below the words “PROFESSIONAL DEBT COLLECTORS” were used. Also used in the letter was an acronym for the agency’s name (i.e., “CCB”). The plaintiff tried to argue that thedescriptionthe collection agency used (i.e., “PROFESSIONAL DEBT COLLECTORS”) and the acronym it used for its name was misleading because they appeared to be organizationnamesother than the agency’s true name. Reasonableness prevailed when the Court applied the unsophisticated consumer test. The Court found that “PROFESSIONAL DEBT COLLECTORS” merely described what the agency is, and that “CCB” is a commonsense abbreviation of the agency’s name that was clearly spelled out at the top of the letter. The Court was on a reasonableness roll when it then rejected the plaintiff’s argument that the agency used unfair or unconscionable means to collect the debt since the letter was signed by three individuals, one of which who was not licensed by the Minnesota Department of Commerce. Although Minnesota does require all individual debt collectors to be licensed, the Court in no uncertain terms pointed to precedent holding that the FDCPA was not meant to convert every violation of a state debt collection law into a violation of the FDCPA. On balance, the Court found that since the agency was licensed and the other two individuals who signed the letter were individually licensed as well, the one unlicensed person signing the letter was not enough to show that unfair or unconscionable means were used. Even though commonsense prevailed here, there are some commonsense lessons to be learned here too to avoid this kind of situation to begin with. First, if you’re going to use acronyms for your agency’s name, make sure to include the acronym after the first time your full name is spelled out (e.g., “CREDIT-COLLECTIONS-BUREAU (CCB)”). Second, don’t allow unlicensed individuals to sign collection letters.

Thanks again to Applied Innovation — the team behind ClientAccessWeb, Papyrus, PayStream, and GreenLight — for sponsoring the Compliance Digest. 

Judge Denies MTD Over Ill-Timed Used of Safe Harbor Language in Letter

A District Court judge in Wisconsin has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act because it included safe harbor language in a collection letter that it did not need to include.

WHAT IT MEANS FROM XERXES MARTIN OF MALONE FROST MARTIN: A current trend we are seeing in litigation is whether or not the safe-harbor type language matches the terms of the underlying debt’s contractual terms. An example is when the debt’s contract terms do not provide for any form of other charges, other charges should not be mentioned in the safe-harbor because there cannot be any “other charges.” Because Hoffman was only on a Motion to Dismiss, we do not know the contract’s terms and it could have a different outcome at summary judgment. While Judge Adelman provides an interesting alternative safe-harbor disclosure for debts that may go to litigation, I would not be too quick to make changes while the litigation is still pending.

Report Details the ‘Long Odds’ Consumers Face When Fighting Collection Suits

The Atlanta Journal-Constitution has published an in-depth report on how small claims courts and the legal system “stack the deck against consumers” when sued by collection agencies.

WHAT IT MEANS, FROM JUDD PEAK OF FROST-ARNETT: I doubt many would argue that the current debt litigation system does not need to be improved. At best, there is a negative public perception that controls discourse. Take healthcare debt, for instance. Hospitals and medical providers have a right to have their past due accounts paid; however, resorting to lawsuits as the norm runs the risk of becoming known as the hospital/doctor that sues its patients – not exactly a sought-after reputation.

A lot of the anecdotal problems with small claims litigation stems from inequality between the parties. Consumers often are not represented by an attorney, and consequently the debt collection attorney has an inherent advantage in using the court system to his or her client’s interests. We might assume that nearly all of the lawsuits have merit – that the account being sued on is actually owed by the consumer/defendant – but there are few safeguards in place with the courts to make this assurance.

The rapid increase in debt collection lawsuits is significantly impacted by the restraints placed on pre-litigation collection efforts. The anticipated debt collection rules are expected to include limits on consumer contacts. Many states have enacted similar limits on the frequency that a debt collector can communicate with a consumer. Rampant consumer litigation under the FDCPA has relegated initial validation letters to mere notices of rights, rather than effective attempts at collection. All of these factors have served to narrow the ability of collectors and consumers to resolve accounts prior to litigation, thus resorting in more and more lawsuits. Rather than a lawsuit being the collection method of last resort, it has necessarily become a commonplace collection strategy.

California Legislature Advances Amendments to CCPA

The California state legislature continues to work on changes to the California Consumer Privacy Act, considered to be one of the most onerous consumer protection laws in the country.

WHAT IT MEANS, FROM LESLIE BENDER OF BCA FINANCIAL SERVICES: As January 1, 2020, the “go live” date for California’s Consumer Privacy Act (Assembly Bill 375, signed into law on June 28, 2018) continues to grow nearer, there is still a flurry of activity among California lawmakers over whether or not to pass a “fix it” bill to clarify the CCPA. In this year’s legislative session over one hundred bills were submitted to “fix” some aspect of the CCPA – all of which must be dealt with in some manner by August, 2019. Among the most controversial “fix it” bills is Assembly Bill 1416, which is set to be heard April 30, 2019, by the Assembly’s Privacy and Consumer Protection Committee. California consumer advocates have called AB 1416 a “classic wolf in sheep’s clothing.” The CCPA’s architect and top advocate, Alastair MacTaggart has harshly criticized AB 1416 in the media.

Meanwhile, the CCPA directs California’s Attorney General Xavier Becerra to develop regulations related to the implementation of this broad sweeping law. While Attorney General Becerra urges the California legislature to expand individuals’ rights to sue under the CCPA – a series of public comment sessions run throughout the state from January through March of this year have not yet led to draft regulations. Transcripts are available here.

Some local experts believe that “fixes” to the bill will carve out certain activities from broad definitions of what it means to “sell” information under the CCPA and that traditional “loyalty” programs will have a way to continue operating lawfully for Californians without running afoul of this law.

It is important to note that while all this debate is ongoing making it seem as though we need a gyroscope, not a compass to figure out to head toward compliance – the clock is ticking. Even in the absence of regulations – businesses must still prepare to comply with the CCPA. Once in force this law will allow consumers a twelve month “look back” at how their information, if covered by the law, has been “collected” and “sold” (as those words are described in the CCPA). In short, there is no time like the present – despite the law’s particulars being in flux — for businesses who collect, use and disclose information on Californians to begin to track how and where that information is sourced and aggregated – and what happens to it from there on out. Stay tuned!

Fourth Circuit Rules TCPA Collection Exemption Unconstitutional

An exemption under the Telephone Consumer Protection Act that allows for individuals to be contacted on their cell phones using an automated telephone dialing system without first providing consent when collecting on debts that are guaranteed by the federal government is unconstitutional, the Fourth Circuit Court of Appeals ruled yesterday.

WHAT IT MEANS FROM DAVID KAMINSKI OF CARLSON & MESSER: In American Association Of Political Consultants, Inc. v.  FCC, etc. at issue was whether the 2015 amendment to the TCPA, which created an exemption for debt collection calls made by or on behalf of the US Government, violated the US Constitution. In short, 47 USC 227 of the TCPA, as amended in 2015, provides that it is unlawful to make a call to a cell phone via an automatic telephone dialing system or a prerecorded voice without the express consent of the called party,  unless such call is made solely to collect a debt owed to or guaranteed by the United States . . . .

The Fourth Circuit Court of Appeals held, in agreement with the lower federal district court, that the debt-collection exemption to the TCPA constituted a “content-based” speech restriction.” Once you have a “content-based” speech restriction, that restriction must satisfy a “strict scrutiny” test—that is, that the content-based restriction has to satisfy two things. It must:   1. “advance a sufficiently important governmental objective” and; 2. has to be “narrowly tailored to further a compelling governmental interest”—as required by the U.S. Supreme Court’s ruling in Reed v. Town of Gilbert, 135 S. Ct. 2218 (2015). 

The unanimous 4thCircuit Court of Appeals panel of Judges held that the 2015 “debt-collection exemption”  does not further the purpose of the TCPA—which was designed to “protect[] . . . the privacy interests of American consumers”—They noted that in the student loan debt collection context, “millions of debtors owe debts about which third parties can make otherwise prohibited calls” under the exemption, and therefore the exemption violated consumers’ rights of privacy designed to be protected by the TCPA.  

The decision here, although troubling to many, is being looked at as the right decision because a statute cannot favor one type of debt over another without a compelling reason to do so. The question posed was: Why should debt collection calls made by third parties violate the law if they are made without consent to a consumer’s cell phone, but Govt. debt collection calls do not violate the same law. The Court of Appeals felt there was inherent unfairness in the exemption, and therefore struck it down as being unconstitutional. 

Judge Grants MSJ for Plaintiff, Certifies Class in FDCPA Letter Suit

A District Court judge in Pennsylvania has awarded summary judgment to a plaintiff and certified her suit as a class action after she alleged a collection agency violated the Fair Debt Collection Practices Act by not being clear enough in a collection letter.

WHAT IT MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: The Third Circuit strikes again! It is getting harder and harder for debt collectors to communicate like normal people. It appears that we are headed towards a land without settlement offers or any offer to “help” the debtor. This decision reinforces the thought that the “least sophisticated consumer” is actually very creative with an uncanny ability to think “outside the box.” Debt collectors and debt buyers should review their letters against this decision to see if their offers of “help” can be misunderstood. Also to be noted is the narrow class definition of consumers from one county.  

CFPB To Include More Details When Sending CIDs

When letting you know that it’s investigating you, the Consumer Financial Protection Bureau is going to start sharing some more information about what they think you might have done wrong.

WHAT IT MEANS, FROM TOM GOOD OF BARRON & NEWBURGER: Receiving a CID from a federal agency can be one of the most intimidating pieces of mail any small business receives. The timelines are compressed and the options to respond are limited and involve interfacing with the regulator who issued the CID in the first place. Sharing more information with the target of the CID allows at least psychic relief in knowing what the real issue is that the CFPB is attempting to understand. Furthermore, to the extent more information is shared, misunderstandings can be explained and an operational leader will be able to better understand initially how policies and procedures are perceived by the regulator.

Thanks again to Applied Innovation — the team behind ClientAccessWeb, Papyrus, PayStream, and GreenLight — for sponsoring the Compliance Digest. 

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