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Compliance Digest – May 10

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.

CFPB Sues Companies Behind Lexington Law, CreditRepair.com

The Consumer Financial Protection Bureau has filed a lawsuit against Lexington Law and a number of companies operating under PGX Holdings, Inc. for violating the Telemarketing Sales Rules by engaging in “bait advertising” and “requesting or receiving payment upfront for certain telemarketed credit repair services,” according to a copy of the complaint, which was filed in District Court for the District of Utah.


In filing suit against Lexington Law, the CFPB took an important and necessary step to protect consumers from incurring unnecessary (and unlawful) expenses by for-profit credit repair and debt management companies that seek to take advantage of already financially distressed consumers. It also is encouraging to see the CFPB take up this cause as prior conversations with various regulatory representatives seemed to suggest that authority to bring such actions was tasked largely to the FTC, as opposed to the CFPB. Concerted action in response to the behaviors of such companies by both the FTC and CFPB is essential and it is heartening to see that happen.

But more is needed. Creditors and their ARM industry partners receive literally pallets of letters every week from these organizations raising a host of alleged disputes and revoking consent to contact consumers. This leaves creditors and agencies with few options to collect what are often, entirely accurate and legitimate debts. Many agencies have collected evidence of consumers expressing surprise or otherwise being unaware that these companies are representing them in attempting to resolve the consumers’ debts. While consumers certainly have a right to ask others to advocate on their behalf, those advocates have a responsibility to act in the consumer’s best interests and not their own. Indeed, as recognized by both the CFPB and FTC on their respective websites, these companies often fail to achieve any better results for consumers than those consumers could obtain on their own without incurring the additional costs demanded by these for-profit entities.

Looking forward, it is important to note that the CFPB’s NPRM contemplates interaction through various channels between the ARM industry and consumers about their debts. Indeed, parts of the NPRM seem to assume such engagement will be possible and regularly occur. It also provides additional protections for consumers to better enable them to protect their own interests. But in today’s world, debt management and credit repair organizations seem focused on disrupting that sort of engagement until they get their due from these consumers and the ARM industry alike. This approach seems out of step with what the CFPB envisions for the future of collections and further guidance is needed to assist both consumers and the ARM industry in navigating their interactions with these entities.

Judge Denies Motion to Dismiss FDCPA Suit Over Dispute Notice in Letter

A District Court judge in New Jersey has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by not indicating in an initial collection letter to an individual that a dispute must be filed in writing.

WHAT IT MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Words used in statutes are supposed to mean something. Statutory interpretation requires it. But, according to this court, Congress really didn’t mean what it said when it enacted FDCPA. As we’ve known for over forty years, the FDCPA instructs entities subject to it, to include certain statements in initial notices sent to consumers — now known as the “validation notice.”

The Act is incredibly straight-forward in this regard. Debt collectors are instructed to inform consumers that the debt collector will assume the debt being collected is valid unless the consumer disputes the validity of the debt (or any portion thereof) within 30 days of their receipt of the validation notice. Congress specifically did not require a consumer to make this dispute in writing. Just pick up the phone and tell the debt collector you dispute and the collector can no longer assume the debt is valid.

Then, in the very next sentence of the FDCPA following this “non-writing” provision, Congress did mandate that if the consumer wants verification of the subject debt, the consumer must make that request “in writing.”

The two sentences are designed to accomplish two very different things. The first is designed to make it easy for the consumer to let the collector now that the debt is disputed such that the collector cannot assume the debt is valid (which also has implications if the collector later credit reports the debt). The second sentence, on the other hand, is designed to inform the consumer how to request verification of a debt. And it instructs that the consumer needs to make this request in writing.

It wouldn’t have taken much in the way of additional ink for Congress to add an “in writing” requirement to the first sentence. But it chose not to do so. Read together, as they must be, these two sentences are crystal clear to any reasonable person reading them. Except in the minds of a handful of courts in the 3rd Circuit. And even there, this case appears to be in the minority as most courts there do follow the statute as written.

The upshot? The 3rd Circuit needs to fix this and apply the statute as written.

NC AG Reaches $15k Settlement With Agency For Operating Without Proper Permit

A Massachusetts collection agency has agreed to a $15,000 settlement with the Attorney General of North Carolina for allegedly attempting to collect debts in the Tarheel State without obtaining a proper license.

WHAT IT MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: Now more than ever, the collection industry is under a tremendous amount of regulation. Not only do many states require licensing to collect in their jurisdictions, municipalities within those states are now also requiring additional steps for collection agencies to take in order to collect against their residents, regardless of whether the agencies have a local physical presence. For example, at least twenty-nine states require licensing or registration of the business. The District of Columbia, Buffalo and New York City are some examples of municipalities that have their own collection regulations. When an agency is confronted with a transient debtor who incurred a debt in one state, but has since moved to another, compliance with various jurisdictions becomes more complicated. In circumstances where litigation commences as a result of alleged noncompliance with the various regulations, whether principals of the collection agency have exposed themselves to personal liability also becomes a consideration.

This situation that occurred in North Carolina underscores the importance for any entity in the business of collections to be diligent in ensuring that they are complying with the laws of the states and municipalities where they collect. The consequences for not doing so may place the future of that business at risk.

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

Appeals Court Upholds Judgment for Defendant in FDCPA Bona Fide Error Case

The Court of Appeals for the Seventh Circuit has upheld a lower court’s summary judgment in favor of a defendant that was sued for allegedly violating the Fair Debt Collection Practices Act by improperly attempting to collect on a time-barred debt because the defendant properly applied the FDCPA’s bona fide error defense.

WHAT IT MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: In Abdollahzadeh v. Mandarich Law Group, LLP, (7th Cir., April 29, 2019), a collection law firm was sued under the FDCPA for filing suit to collect a debt that was outside the statute of limitations. The firm relied on information from the creditor identifying the date of the last payment as being within the statute of limitations. That information related to a payment that did not clear, so it did not qualify as a “payment.” The prior payment did not extend the statute of limitations to the date of filing, so the debt was out of statute. The law firm relied on the creditor’s representation that the date of the last payment was valid and correct, though, and its procedure was to accept that information unless it discovered something to the contrary.

At the summary judgment stage, Mandarich relied on a bona fide error defense claiming that it unintentionally filed suit to collect a debt outside the statute of limitations and that the error was due to a reasonable reliance on the creditor’s records (that turned out to be incorrect). The Seventh Circuit Court of Appeals granted summary judgment in favor of the firm finding the law firm’s policy of not suing on out of statute debt and procedures of relying upon information given to it by the creditor was sufficient to support a bona fide error defense. 

To state a bona fide error defense, the collector made an unintentionally error in spite of procedures being in place that were reasonably designed to prevent the error. The Court disagreed with the plaintiff that the firm did not do enough to verify the creditor’s records finding that a law firm’s reliance on a creditor’s account reports is reasonable. An important take away from this case is that the absence of a written policies and procedures are not required to support a bona fide error defense. 

While it is always better to have written policies and procedures to better be able to prove their existence, they do not need to be memorialized in writing for a court to find they exist. That is important to remember because, especially in smaller agencies, it is very difficult to find the time to put every procedure in writing. If not in writing, it is even more important for procedures to be known to each employee and consistently implemented (which, though, is much easier to do if the policies and procedures are in writing).

The Abdollahzadeh opinion strongly supports an important defense and reminds us that we have a right to rely on information our creditors provide and that undocumented procedures may be sufficient to raise the bona fide error defense. 

Judge Grants Summary Judgment for Defendant in FDCPA Case, Ruling Bona Fide Error Was Made

A District Court judge in Nevada has denied a plaintiff’s motion for summary judgment and instead granted summary judgment in favor of the defendant because its violation of the Fair Debt Collection Practices Act was not intentional and falls within the statute’s bona fide error defense.

WHAT IT MEANS, FROM ETHAN OSTROFF OF TROUTMAN SANDERS:Following on the heels of the big industry win out of the Seventh Circuit in Abdollahzadeh v. Mandarich Law Group, LLC, this decision from the District of Nevada should be another arrow in the industry’s compliance quiver. Focusing on how to establish a bona fide error in the calculation of the amount of interest due, the Court in Urbina first concluded the violation was unintentional and that it resulted from a bona fide error because the collector was provided an incorrect date of last payment by the creditor and did not become aware of this error until the litigation commenced.

Next, the Court turned to whether the debt collector maintained reasonably adapted procedures to avoid this specific type of error.  It focused on the agreement between the collector and the creditor, which required the creditor to provide accurate account level data, finding this agreement “is evidence of a procedure … to avoid this error,” which was sufficient to establish reasonable reliance on the creditor’s representation as to the date of last payment.

In reaching this conclusion, the Court rejected the consumer’s argument that a debt collector must have a written policy to request the last statement for each account referral or some other type of “human intervention” in verifying account level data, because relying on an agreement with the underlying creditor “to assign accounts … with only accurate data” is reasonable and legally sufficient. However, in making its decision, the Court did not address whether a procedure to send an automatically generated letter to the underlying creditor requesting notification of any error identified in the account assigned for collection, and having done that in this case without any notification of an error by the creditor, could establish reasonable reliance on the creditor’s representation sufficient to prove a bona fide error.

Owner of Collection Agency Facing Charges After Filing False Tax Return Claiming Wages of $5 Million

The owner and sole employee of a Buffalo-based debt collection agency is in legal hot water, after being accused of filing an amended income tax return claiming she made $5 million and requesting a refund of $39,000.

WHAT IT MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Committing fraud is not likely to be a successful career path.

But that shouldn’t be news to anyone. Ms. Izevbizua was alleged to have attempted tax fraud. Interesting on some level, but really why should I care? Just because she’s identified as the owner of a “Buffalo based” debt collection agency. Not exactly earth shattering.

Nonetheless I clicked to read the full story – I saw that she had a company called Web Debt Solutions. I also clicked on the release issued by the Erie County District Attorney’s office where the alleged criminal activity was described in detail but did not identify her as a debt collection agency owner. The second click brought me to an article published by the Buffalo news where she was identified as a debt collection agency owner. From what I could see, the alleged fraud was not in connection with the running of the agency per se so why make the connection?

But then I did a little digging – I went Ms. Izevbizua’s website webdebtsolutions.com and I sat up and took notice and suggest that everyone else reading this go to the website and look for yourself. I am aware of the scammers on the fringes of our industry, but they are usually fall into the same categories as the people who send emails pretending to be a friend or relative and they need immediate cash for various and sundry reasons.

This was different. The website looks very impressive, lots of tabs and information, as if this company was a going concern and that is the scary part, because only as I started to read it closely did I start to notice issues. First off and my favorite was the “due deligence” (sic) tab. Then I looked under the clients tab which provided some seemingly impressive names until I noticed that the list was actually of “potential” clients, kind of like my “potential” winning lottery ticket. (still waiting on that one) As I said, take a look, its enlightening.

My final thought, I for one will admit I didn’t realize there are sites like this out there and now that I know I wonder how many there are. Question – should this concern those of us who care about our industry? Comments anyone?

Appeals Court Upholds Receipt of One Text Message Enough to Sue for TCPA Violation

In one of those cases that sounds like it is fascinating to lawyers and courtroom junkies but flies over the head of the rest of us, the Court of Appeals for the Second Circuit has essentially affirmed a lower court’s ruling that the receipt of a single unwanted text message is enough to confer standing for an individual to file a lawsuit alleging violations of the Telephone Consumer Protection Act.


While the procedural aspects of this case are procedurally interesting to fellow lawyers, what this case means to the financial industry is that the injury in fact and particularized injury necessary to demonstrate standing can be simply the annoyance of receiving unwanted texts (or phone calls). And further following a long line of cases since Spokeo, the magnitude of particularized injury is not relevant to whether injury in fact exists. 

Procedurally, this case is a little complicated. Four consumers sued American Eagle Outfitters and its management company (AEO) and Experian Marketing Solutions (Experian), a third party vendor who was involved in sending  sent the offending text messages, in a class action for violation of the TCPA for sending automated text messages without consent.  The consumer alleged injury by receipt of the unwanted texts. Experian filed a Motion to Dismiss for failure to properly allege that Experian violated the TCPA, and the Court granted the Motion to Dismiss. AEO filed a third party indemnity complaint against Experian. Thereafter, AEO and the named plaintiffs reached a settlement on a class-wide basis, which leaves AEO’s indemnity complaint against Experian to be litigated.

Experian objected to the settlement, arguing in part that none of the named class representatives had injury in fact as required by Spokeo to establish standing to sue. The Court held that Plaintiffs had particularized standing, and approved the settlement.  In approving the settlement, the District Court overruled the objection of a class member. Unhappy with the District Court’s ruling, Experian and the objecting consumer filed an appeal to the Second Circuit. The Second Circuit initially reviewed whether Experian had standing to object to the class settlement. The Second Circuit explained that Experian did not have standing to appeal the approval of the class settlement because Experian was not a party to the settlement.  Furthermore, AEO’s settlement with Plaintiffs and the class did not bar Experian from arguing in the indemnity case any defenses that AEO could have used against Plaintiffs and the class. Because Experian was not “formally stripped” of any claim or defense, the Second Circuit ruled that Experian lacks standing to appeal  the District Court’s decision approving the class settlement.  

Nonetheless, the Second Circuit did look at whether the Plaintiffs had injury in fact to create standing to bring the case in the first place. First, the Court noted that receiving even a single spam text caused injury in the form of  nuisance and privacy invasion which is invariably attendant with spam texts. The Second Circuit explained that this nuisance and privacy invasion is the very harm that the TCPA was enacted to prevent, and history confirms that courts have been addressing these types of injury throughout America’s history and in English courts as well. Thus, the Court concluded that even a single unwanted message would establish injury in fact and support standing to bring suit. While this means that Experian can aggressively defend that indemnity action by arguing that Plaintiffs’ case would have failed if there was no settlement, one must wonder if Experian can build a compelling case without the consumers participating in the lawsuit. Perhaps they can be subpoenaed to testify at trial, but I imagine this makes it more difficult for Experian to defend itself.

As for the consumer objecting to the settlement, the Second Circuit affirmed the class settlement, finding it was a fair settlement, even though the net recovery for each of the hundreds of thousands of class members might be in the range of $23. The Second Circuit explained that recovery is not certain in litigation, and risks in litigation for both the law and facts in this case, as well as the length of any litigation were real considerations. The Second Circuit also addressed the objectors argument that the class should not include claims that arise after the filing of the lawsuit. The Second Circuit relied on the fact that the class covers legally and factually identical claims, and thus the released claims are acceptable. The Second Circuit did not take issue with the $10,000 incentive bonus paid to each class representative, which isn’t surprising in that the case lasted more than 3 1/2 years. The take away from this aspect of the case is that class settlements in high dollar TCPA cases can be obtained for small dollar recovery for the class (although the settlement funds were in excess of $14 million). Additionally, incentive payments for class representatives are common, and 5 figure incentives are within the realm of approval by a court.

Mother’s Say-So Not Enough to Keep Judge From Granting MSJ For Defendant in FDCPA, TCPA Case

A District Court judge in Texas has granted summary judgment in favor of a defendant that was accused of violating the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act, in part because the plaintiff’s mother heard the plaintiff revoke consent to being contacted, except for the fact that the revocation came months before the defendant started calling the plaintiff.

WHAT IT MEANS, FROM RICK PERR OF FINEMAN KREKSTEIN & HARRIS: Facts matter. Although plaintiffs are given great leeway to make allegations in a complaint and survive a motion to dismiss at the earliest stages of litigation, courts are permitted to partially weigh the evidence at summary judgment when all discovery is completed. 

Here, the evidence – that plaintiff’s mother corroborated the revocation of consent – was insufficient to survive a motion for summary judgment. That is because the evidence put forward by plaintiff (and her mother) clearly demonstrated that “revocation” occurred before the defendant agency even began making calls. So, either plaintiff did not actually revoke consent (and the recordings maintained by defendant did not contain revocation), or plaintiff revoked consent when speaking with a different collection agency. Both scenarios warranted summary judgment for defendant. 

It is important for counsel to evaluate cases to advise their clients on “winnable” litigation when in the process the “win” is most likely to occur – at the outset, after the close of discovery, after trial or on appeal. In this way agencies are better equipped to weigh the costs of defense. 

Judge Denies MTD in FDCPA Case In Debate Over Whether Debt Was For Consumer or Commercial Purposes

A District Court judge in New York has denied a defendant’s motion to dismiss a Fair Debt Collection Practices Act lawsuit because even though a box on a contract was checked indicating the plaintiff was signing up as a corporation and not a consumer, the plaintiff’s assertion that he was signing up as a consumer is sufficient to not dismiss the case.

WHAT IT MEANS, FROM JUDD PEAK OF FROST-ARNETT: This ruling is narrow in scope – the underlying consumer contract states it is “commercial” for a  corporation, but the plaintiff/consumer disagreed and stated that the services were rendered in his personal capacity.  On a motion to dismiss, a judge will not resolve factual disputes. Consequently the defendant’s motion was denied and the case will proceed to trial. 

One interesting aspect that was not considered in the court’s ruling is the voicemail message. The debt collector left a modified Zortman message for the consumer that did not include the consumer’s name (or otherwise indicate that the call was to collect on a debt).  I think it is arguable that the voicemail message does not constitute a “communication” under the FDCPA and thus the 1692d and 1692e claims should not have merit. The newly-released NPRM from the CFPB would lend support to such a conclusion. 

Court Denies Certification in TCPA Suit Over Collection Calls

A District Court judge in California has declined to certify a class action lawsuit alleging a defendant violated the Telephone Consumer Protection Act by making collection calls to individuals who were not the intended recipients of the communications.

WHAT IT MEANS, FROM VIRGINIA FLYNN OF TROUTMAN SANDERS: The Revitch decision is significant because it seems the majority of courts are finally seeing the difficulty if not impossibility of certifying wrong number or reassigned number classes under the TCPA. Importantly, while ascertainability was not the problem here (based upon data that Citi had ready access to), it was the lack of predominance that thwarted Plaintiff’s class based upon individualized issues of consent within the data set. At bottom, individualized issues of consent should always be placed at the forefront of every case — especially wrong number or reassigned number putative classes.

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

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