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Compliance Digest – June 6

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.

Class-Action Suit Alleges Agency Violated FDCPA By Charging Service Fee for Card Payments

A class-action lawsuit has been filed against a collection agency for allegedly violating the Fair Debt Collection Practices Act by indicating in a collection letter than a service charge would be applied to any payments made via a credit card. More details here.

WHAT THIS MEANS, FROM MATT KIEFER OF THE PREFERRED GROUP OF TAMPA: I know there are advocates for and against whether charging a “convenience fee” is permissible under FDCPA. In this case, I think it is clearly worded and by bolding and listing the “free” options to pay, I don’t think you can argue the least sophisticated consumer could be confused that they owe more than they do when the letter clearly indicates a $3.50 fee will be charged if paying by credit card. ( Line 31 of the complaint: Defendant misled and deceived Plaintiff into the belief that she falsely owed an additional $3.50 when this charge is a violation of the FDCPA.) However, I have always been pretty conservative when it comes to “grey areas” so I have never been an advocate of charging convenience fees when paying by credit card. I also see an issue with the fee being a set amount, and not representative of the actual costs incurred for processing. For instance, if the amount being collected is a $20 copay sent to collections, is a $3.50 fee reasonable since the agency’s true costs will be far less? Could an argument be made that the agency was unjustly enriched by having such a policy? More importantly, I think the CFPB had already warned against charging convenience fees and had put out something I read at some point that reaffirmed my view on this matter. It will be interesting to see how this turns out. That said, I would love clarity and finality on this so that an agency could reduce its costs, and because this is a viable option in the first party environment.

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Another Ruling From EDPA That Statutory Dispute Notice is Confusing

In yet another case out of the Eastern District of Pennsylvania, a judge has denied a defendant’s motion for summary judgment after it was sued for violating the Fair Debt Collection Practices Act by using the statutory dispute notice in a validation letter that was sent to an individual. More details here.

WHAT THIS MEANS FROM DENNIS BARTON OF THE BARTON LAW GROUP: In Grady v. Portfolio Recovery Assoc., 2:18-cv-02393 (E.D. Pa. 2019), yet another district court in the Third Circuit ruled that using the exact language of § 1692g(a)(3) (which says consumers have 30 days to dispute the debt or it will be considered valid) was not sufficient to clearly convey a consumer’s rights under § 1692g(a)(3). You read that correctly. Did it hurt your head? It should have because it is contrary to logic and common sense. Grady held repeating the language of § 1692g(a)(3) (usually the first sentence of the validation language in notices) fails to comply with the FDCPA and needs to expressly state all disputes must be in writing. While that position is consistent with the most recent decision by Third Circuit Court of Appeals, it is contrary to the rest of the country where courts say § 1692g(a)(3) did not include a writing requirement like § 1692g(a)(5). That means Congress did not intend to require a consumer to dispute a debt in writing if all the consumer wants to do is dispute the debt (opposed to seeking verification).

This case is a sad reminder that collectors who want to send validation notices to consumers in Pennsylvania, New Jersey, or Delaware must make a difficult decision: (1) send a notice with the same § 1692g validation language as you send elsewhere in the country and risk being sued because the current Third Circuit precedent says you violated the FDCPA; or (2) add a writing requirement making the validation notice compliant under current law, but being at risk of violating the FDCPA if (and more likely when) the Third Circuit changes its position and gets in line with the rest of the county. Under either avenue, collectors have significant legal exposure, especially if they are sending a high volume of letters that could give rise to a class action.

There is no right answer. This is a business decision that collectors need to discuss with their counsel, weigh the risks, and act accordingly.

Tennessee Lawyer Seeking Plaintiffs After Accusing Collectors of Possibly Breaking State Law

Debt collectors in Tennessee who are seeking to recover the entire balance of unpaid medical debts from uninsured patients may be breaking the law, and a lawyer is looking for individuals to participate in a class-action lawsuit against any alleged perpetrators. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: Debt collectors who are seeking to recover the entire balance of unpaid medical debts from uninsured patients in Tennessee may be violating the FDCPA and a lawyer is looking for individuals to participate in a class-action lawsuit against any alleged perpetrators.

Tennessee state law caps charges to uninsured patients at 175% of the actual cost for the services. The statute was enacted in 2005, as part of Tennessee’s Health, Safety and Environmental Protection Code.

Because healthcare facilities are prohibited from charging uninsured patients rates that exceed this calculation, collection efforts based on underlying charges in violation of the statute may constitute violations of the FDCPA.

Tennessee has not enacted a separate state law containing protections beyond those of the FDCPA, meaning that the acts of “original creditors” are not targeted here— the FDCPA only governs the acts of third party debt collectors.

While Tennessee state debt collection law provides basic protections against harassing and abusive collection tactics, it does not provide a private remedy. Tennessee courts do not allow consumers to bring a lawsuit for a violation of state law.

This potential class action serves as a warning to collection agencies—debt collectors can’t ask debtors for more money than they legally owe. Written debt validation notices have to include the specific amount owed. That amount is often subject to state specific caps and limitations.

Judge Grants Motion for Reconsideration, Then Denies MTD in FDCPA Letter Case

A District Court judge in the Eastern District of New York has reversed himself and has denied a dismissal of a lawsuit filed against a collection agency for allegedly violating the Fair Debt Collection Practices Act because a validation notice was not specific about it being the initial communication between the collector and the individual. More details here.

WHAT THIS MEANS, FROM MARK ROONEY OF THE ROONEY FIRM: The court’s decision raises two points — one substantive and one tactical. The substantive lesson here is that letters sent to consumers must be clear. It is one of the most commonly litigated issues and, in this case, the potential for confusion in the letter to one consumer seemed more prominent in comparison to the less ambiguous letter to another consumer in the related case. The tactical litigation issue concerns the practice of designating cases as “related” — an option in certain circumstances in federal court, employed here. Litigating related cases together may save time and resources. On the other hand, even small differences in the factual allegations may ultimately confuse the court and cloud the issues which, as this case demonstrates, may result in otherwise needless briefing and confusion over the direction of the case. This decision underscores the trade-offs inherent in designating cases as “related”; parties and counsel should carefully consider whether to support or oppose consolidation.

Supreme Court Rules on Class Action Removal in Case That Could Have Implications For Collections Industry

The Supreme Court yesterday affirmed decisions from the District Court and Appeals Court that a third-party defendant can not use the Class Action Fairness Act (CAFA) to remove a state court action to federal court in a case that started as a run-of-the-mill collection suit. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: The 5-4 Supreme Court ruling on in the case of Home Depot v. Jackson implication could be substantial in the collection industry.  The court held that a company such as a collection company that in practice sues consumers in most cases would be forced to defend a class action counterclaim filed by the consumer in state court, without any opportunity to remove the case to federal court. It is well known that class action defendants prefer their cases heard in federal court, where the protections of Federal Rule of Civil Procedure 23 apply and where courts and juries are less likely to disfavor an out-of-state business. This ruling interpreted the language under the Class Action Fairness Act (“CAFA”) to prohibit this preferred option of removal and could leave many collectors that find themselves as a defendant in a class action at a huge disadvantage. If the “loophole” used to render this opinion under the CAFA is not closed by Congress, the number of class actions that will be brought by plaintiffs in this manner is no doubt substantial. Plaintiff attorneys know the benefits of litigating class actions in the local state court and will cease on the advantage. Whether the current Congress will act to solve this problem is less than clear, and as such, agencies should consider this risk as it relates to all current and future actions taken.

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

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