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Compliance Digest – May 16

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 Releases Proposed Debt Collection Rule

The Consumer Financial Protection Bureau has released its long-await proposed debt collection rule. Here is some of the coverage provided by AccountsRecovery.net:

How Consumer Advocates Reacted to Proposed Debt Collection Rule

Industry Professionals Share Perspectives on Proposed Collection RuleAdvocates Detail Changes They Want Made to CFPB’s Proposed Rule

How The Mainstream Media Covered the Release of the Proposed Debt Collection Rule

Advocates Continue Railing Against Proposed Collection Rule at CFPB’s Town Hall

Two Words To Help Industry Cope With Anxiety Over Release of Proposed Debt Collection Rule

Calif. Appeals Court Rules Collector Fixed Violation Promptly, But Restores Suit Because Named Plaintiff Was ‘Picked Off’

A California Appeals Court has upheld that a collector appropriately used a cure provision in the Rosenthal Fair Debt Collection Practices Act in fixing a type-size issue in a collection letter, but overruled a lower court that doing so allowed an entire class action against the collector to be dismissed.

WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: The case  Timlick v. National Enterprise Systems, Inc.,  is the perfect example of how a notice to cure statute can benefit debt collection agencies if the cure actually fixes the problem. In the case the agency violated the state statute by not providing the required notice in the correct font size. After learning of the violation the business attempted to cure the problem, to do so they sent a corrected notice back to the named Plaintiff in the correct font size as required by the statute. The problem is that they only cured for one person, not all the people who got the notice in the wrong size. Since it was a class action case, the agency needed to send the corrected notice in the right font size to every person in California who got the letter in the wrong font. Had the agency fully cured for all the class members they would have won the case, instead, by only curing for the named Plaintiff they were still liable to the members of the class for the violation.  

Right to cure statutes are very helpful to businesses who are trying to do the right thing. The lesson of this case is to make sure when you receive notice of a violation that you identify everyone who needs a cure and remediate for that entire group in order to avoid liability and fully avail the business to the protection of the right to cure. It would be awesome if the NPR included a right to cure for the FDCPA. If you are thinking about commenting on the proposal, consider adding a request for a right to cure!

Ninth Circuit Rules CFPB Leadership Structure is Constitutional

The Ninth Circuit Court of Appeals yesterday ruled that the leadership structure of the Consumer Financial Protection Bureau is constitutional and affirmed a lower court’s ruling forcing a debt relief law firm to comply with a Civil Investigative Demand inquiry from the agency.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: When Congress created the CFPB in 2010, it conferred a broad array of powers upon a single CFPB Director who can be removed by the President only for cause. The question is: Was this “for cause” restriction on the President’s removal authority constitutional? In CFPB v. Seila Law LLC, the Ninth Circuit answered this question with a “yes,” just like the D.C. Circuit did five months ago in PHH Corp. v. CFPB.

The Seila Law case involved a demand by the CFPB that a law firm turn over a wide variety of business and financial records that the firm considered to be confidential and privileged. The firm refused, arguing that it was not required to comply with the demand because the entire CFPB is unconstitutional and violates the separation of powers. The Ninth Circuit rejected this argument, but did so in a decision which hardly brims with confidence and almost seems to invite Supreme Court review in its conclusion.

The holdings of the D.C. Circuit and now the Ninth Circuit illustrate just how powerful the CFPB has become. What happens next remains to be seen.  Keep your eye on a potential petition to the U.S. Supreme Court. This fight is not over yet. 

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

Judge Grants MTD in FDCPA Case About Oral Dispute

A District Court judge in Nevada has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by not ceasing to collect on an unpaid debt after the plaintiff disputed it, because the plaintiff did not file the dispute in writing.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: What it means:

What happens in Vegas should’nt stay in Vegas – at least if you’re collecting debt

In Nguyen v Plusfour, Inc., Plusfour, a collection agency located in Nevada reported a debt in the amount of $132 against Nguyen without identifying the original creditor. Nguyen discovered the debt on his credit report and contacted Plusfour over the phone and requested validation of the debt. Plusfour informed Nguyen that it would cost $10 to validate the debt or that Nguyen could receive validation upon paying off the account. Nguyen neither sent in the $10 or resolved the debt and instead filed a complaint alleging a violation of § 1692g(b) of the FDCPA due to Plusfour’s failure to provide verification cease collection of the debt pending verification.

The court granted Plusfour’s motion to dismiss noting a debt collector is obligated to cease collection activities under § 1692g(b) only after the consumer requests verification in writing and Nguyen only requested verification over the phone.

So far Plusfour was more lucky than smart. The request for either a fee or payment of the debt as a prerequisite to provide verification would serve as no more than red meat to the majority of the carrion that prey on the collection industry. Luckily for Plusfour, one of them was not representing Nguyen.

Along with opposition to the motion to dismiss, Nguyen also moved to amend his complaint. He wanted to add a claim under §1692d, which is the catch all provision for claims not specifically listed in other sections, basing it on Plusfour’s failure to identify the original creditor.

Question for all readers — if nothing else why didn’t Plusfour simply tell him who the creditor was when he called? Maybe I’m getting old, but it seems to me, that when you ask somebody to pay you money for a debt and they ask what debt, you’d provide a straight answer, the answer you’d expect if you were on the other side of the phone. Who knows, Nguyen might have simply said “Oh, I forgot about that” and paid. AND saved Plusfour considerable expense for a miniscule amount.

Again, luckily for Plusfour, the Court did not ask that question and simply said no violation because Nguyen did not make the request in writing and would not grant leave to amend based on that claim.

But least you think Plusfour completely dodged a bullet, the decision takes an interesting turn, Nguyen also sought to add a claim under § 1692e(8) for reporting false credit information, i.e. failure to report the debt as disputed. The Court denied the motion to amend as futile since he failed to allege that Plusfour knew the debt was disputed when it reported. Apparently Nguyen failed to allege in the proposed amended complaint that Plusfour continued to report after the phone call. The did give Nguyen 14 days to file another motion to amend.

Curiously and perhaps as a preview on the merits, the Court made the following statement: “The amended complaint also does not allege that Nguyen adequately disputed the debt in compliance with § 1692g(b). Thus, the amended complaint does not plausibly allege a § 1692e(8) violation.” But § 1692e(8) prohibits communication any information known or should be known to be false. There is no writing requirement. This highlights the confusion that while some consumer rights require a writing to implement, others do not and not everyone seems to know which are which.

The takeaway – Don’t treat information on the account as state secrets when speaking to a debtor, it will save time, money and sometimes actually help collect the debt.

Judge Rules for Defendant Using Avila Safe Harbor Language in FDCPA Case

A District Court judge in New York has granted a defendant’s motion for judgment on the pleadings after it was sued for allegedly violating the Fair Debt Collection Practices Act by failing to inform the plaintiff whether the amount listed in a collection letter is the actual amount of the debt that was due.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: The plaintiff in this case asserted that using the Avila safe-harbor language is not enough and that a validation notice should also provide the consumer with detailed information about how interest and “other charges” will be applied to the balance. Of course, the Second Circuit recently held in Kolbasyuk that this information is not required when the collector accurately states the amount of the debt and uses the Avila safe-harbor disclosure to inform the consumer that the balance may increase due to interest and fees. Also, the Second Circuit quickly applied its Kolbasyuk decision in affirming the dismissal of similar, if not identical, claims in another case filed by the same plaintiff. The upshot is that a safe harbor, at least when used correctly, is indeed safe even if it feels rocky from time to time.

Advocates Detail Changes They Want Made to CFPB’s Proposed Rule

Consumer advocates are now starting to detail their concerns with the Consumer Financial Protection Bureau’s proposed debt collection rule and are detailing the changes they would like to see made.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: It has been a little over a week since the Bureau released the Notice of Proposed Rule (NPR) for Debt Collection. Since that time the consumer advocates have been very vocal in their displeasure and opposition to the proposal. Even Maxine Waters, Chairperson of the House Financial Services Committee, made a public statement criticizing the Consumer Financial Protection Bureau (CFPB) calling the NPR “weak” and that it did not “come close to protecting consumers from predatory behavior”.

Specific opposition by consumer advocates ranges from the call frequency limit of 7 calls per week per account, suggesting instead it should be no more than one call per week (with up to three attempted calls per collector) to the opposition of the use of emails or texts unless the consumer has affirmatively “opted-in”. There is overwhelming opposition to the exemption of the limited content message as a communication under the Fair Debt Collection Practices Act (FDCPA).

Three years ago the CFPB published its Outline of Proposal for Debt Collection (the “Outline”). While proposals for the use of email and text were not present in the Outline the current NPR is not a major stretch from what was proposed back in July of 2016. In fact in the Outline, the Bureau proposed 6 call attempts per week and once contact was made, 2-3 calls per week thereafter. The NPR looks to restrain calls after contact with the consumer to now only 1 call per week.

Call me naïve, but I am quite shocked by this opposition. The FDCPA has not been repealed and industry is hardly getting a pass by the NPR. The ARM industry will see a major shift in internal operations when a rule is finalized, either in its current form or in some other variation, in order to ensure full compliance. In my initial review of the NPR, the CFPB is trying to accomplish two things, provide clarity and modernization to an outdated statute while at the same time provide consumers with more control over the rhythm and manner in which they communicate with debt collectors. Former Director, Richard Cordray, reiterated this theme when the Outline was released in July of 2016. So it appears that policy has not changed under the new administration, only the messenger and clearly that is what the advocates do not like.

Lobbyists Ramping Up Push To Get TRACED Act Passed, as CBO Report Details Financial Impact of Bill

While one of the key prongs of the TRACED Act is stiffening the penalties that can be levied against individuals charged with making illegal robocalls, it is unlikely that any revenue generated by the fines would be significant, “because it would probably be difficult to collect assessed penalties,” according to a report released yesterday by the Congressional Budget Office.

WHAT THIS MEANS, FROM RICK PERR OF FINEMAN, KREKSTEIN & HARRIS: The TRACED Act, while well-intentioned, is fraught with unintended consequences. In its current form, telephone carriers could indiscriminately blocked/label calls based on complicated mathematical algorithms without regard to call content. The caller would not know that it’s calls were being blocked and would have no recourse in the Act to appeal the blocking of those calls.

ACA International along with other coalition partners are aggressively lobbying Senators to amend the Act to provide protections to the Accounts Receivable Industry.

Judge Denies MTD in TCPA Case Over Collection Calls Allegedly Made With ATDS

A District Court judge in Florida has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Telephone Consumer Protection Act by making collection calls to an individual’s cell phone using an automatic telephone dialing system without first receiving expressed permission to do so.

WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: This case can be summed up in a single sentence. While there are diverging views, the majority of courts have concluded that the portion of the 2003 FCC Order pronouncing that the TCPA applies to debt collectors is the operative law until further guidance from the FCC or other binding authority.

Plaintiff Accuses Defendant of Making More Than 150 Collection Calls After Consent Revoked

An individual has filed a lawsuit against a cable company in Florida, alleging he received more than 150 collection calls to his cell phone that were made via an automated telephone dialing service without first receiving the plaintiff’s consent and after he told the defendant to stop calling him, alleging the company violated the Telephone Consumer Protection Act.

WHAT THIS MEANS, FROM MATT KIEFER OF THE PREFERRED GROUP OF TAMPA: The complaint is a great read. I wasn’t sure if I was reading a real lawsuit or an article in The New York Times written by a consumer advocacy group member. The allegation in the first part of the complaint of the “over 100 calls” lacks the context of 1) Were the calls connected calls? 2) Over what time span? And, only later do we see these alleged calls were over a four-year time period. The complaint conflates robocalls for marketing versus robocalls for legitimate business purposes when it mentions “Senator Hollings, the TCPA’s sponsor, described these calls as ‘the scourge of modern civilization. They wake us up in the morning; they interrupt our dinner at night; they force the sick and elderly out of bed; they hound us until we want to rip the telephone out of the wall.’ ”

While I have seen creative frivolous allegations in complaint before, I had not seen this: “Defendant’s phone calls harmed Plaintiff by depleting the battery life on his cellular telephone…” and later this tidbit, “Making money while breaking the law is considered an incentive to continue violating the TCPA and other state and federal statutes.” I am not sure how the Defendant was making money calling to collect for money that was already owed for services already rendered. But, throw everything out there and see what sticks. It will be interesting to see if there was consent to call the cell and if it was actually revoked at some point during the four-year period.

I also did not know a complaints were gender-neutral these days: (From Count III, # 85) “By calling his cellular phone, Plaintiff had no escape from these collection calls in his home or when she left the home.” I have never been very PC.

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

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