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Compliance Digest – June 14

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.

Law Firm Plans to Appeal CFPB Leadership Ruling to Supreme Court

A law firm fighting a Civil Investigative Demand from the Consumer Financial Protection Bureau plans to appeal a ruling that the agency’s leadership structure is constitutional to the Supreme Court, the firm announced in a filing with the Ninth Circuit Court of Appeals on Friday. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF CARLSON & MESSER: The Seila Law request for a stay and intent to seek U.S. Supreme Court review will be interesting for the financial services industry to follow as how the U.S. Supreme Court handles this request. (The request for stay has not been granted.) The Seila Law decision by the Ninth Circuit falls in line with the D.C. Circuit’s en banc decision regarding whether the CFPB structure in having a director that can only be removed by the President for cause is constitutional, and conflicts with a Second Circuit decision finding the CFPB structure unconstitutional. The D.C. Circuit en banc, in PHH Corp. v. Consumer Financial Protection Bureau, 839 F.3d 1 (D.C. Cir. 2016), reversed its initial decision that the CFPB’s structure was unconstitutional and held that the inability for the President to remove the Director of the CFPB except for cause did not violate the Constitution. The interesting part of the en banc decision in PHH Corporation is that there were six separate decisions, including three dissenting decisions, and that one of the dissents was authored by now U.S. Supreme Court Justice Brett Kavanaugh. Seila Law hopes that that will give Seila Law a leg up in obtaining a grant of certiorari by the U.S. Supreme Court and an easier time of convincing at least one of the Supreme Court Justices that the CFPB structure is unconstitutional. And of course, it will be interesting to see how the U.S. Supreme Court will address this issue, when the CFPB itself will probably argue that its structure is unconstitutional. The request for cert must be filed within 90 days of May 6, when the Ninth Circuit issued its decision. The Supreme Court will normally accept a case or deny certiorari about 10 days after the briefs are filed. And then briefing and oral argument and issuing a decision takes quite some time.


FCC Approves Call Blocking Measure, But Includes Mechanism For Complaints When Legit Calls are Blocked

In a move that should come as a surprise to nobody, the Federal Communications Commission yesterday approved a Declaratory Order that gives carriers and consumers more power to automatically block incoming calls, which could reduce the number of unwanted robocalls while also possibly intertwining legitimate calls in that net. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: While the FCC’s recent actions in enabling call blocking technology will help consumers avoid unwanted telemarketing robocalls, it poses potential significant challenges for entities who place legitimate calls but may end up being inadvertently (or even intentionally) blocked through this new approach. One industry that stands to be disproportionately impacted by this the FCC’s call blocking measure is the debt collection industry because they are at risk of being mislabeled as a call that should be blocked or intentionally blocked by consumers without any knowledge that has happened. This does not serve the interests of consumers or collectors in a number of ways. First, consumers may, knowingly or unknowingly, not receive legitimate debt collection calls. As a result, and potentially without their knowledge and despite perhaps having a desire to resolve the debt, consumers may find themselves continuing into the collection process, which can lead to negative credit reporting, additional collection efforts through other channels, and possibly, litigation. Additionally, collectors may have no idea that consumers are not receiving their calls and will spend time and resources making calls that do not achieve any productive contact. Further, under the proposed NPRM, collection will still need to account for those unreceived calls within the proposed call frequency limitations because they would not have no indication they were blocked. I am hopeful this will be one of the items raised by the collections industry as a potential unanticipated impact of the FCC’s action as part of the NPRM comment process. Indeed, the call blocking measure may even be vulnerable to First Amendment arguments that it is an improper restriction on what is appropriate and legitimate commercial speech.  

Appeals Court Holds Being More Explicit About Creditor Name in Letter Does Not Violate FDCPA

For the second time in two days, the Seventh Circuit Court of Appeals has affirmed a lower court’s decision in favor of a collector that was sued for allegedly violating the Fair Debt Collection Practices Act. This time, the court ruled on two consolidated class-action suits that the collector did not violate the FDCPA by referring to the client and the original creditor in a collection letter. More details here.

WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: What a breath of fresh air! Section 1692g requires a written disclosure which contains the name of the original creditor. This letter satisfied that requirement and went further by providing the common name, “PayPal”, that a consumer would recognize. No one should be confused by the inclusion of “PayPal” in the letter. The consumer bar is getting more aggressive at picking apart letters, and these are the kind that we can fight. Agency owners must decide carefully when drafting letters and again when fighitng these claims.

Judge Grants MTD in FDCPA Suit Over Letters Sent After Plaintiff Revoked Consent to be Contacted

A District Court judge has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by sending a letter to the plaintiff after she had contacted the original creditors and revoked the right to be contacted. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: In Dahl v Kohn, the law firm defendant sent two letters on two separate accounts to Dahl advising that the law firm was now assigned the particular debt, and then provided the § 1692g(a) validation notice. Dahl had sent a cease and desist letter to the original creditor several months prior. In granting Kohn’s motion to dismiss the Court relied on the obvious, the clear wording of § 1692c(c)’s cease-communication language, “If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt” and pointed out the exceptions, in this case § 1692c(c) (2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or § 1692c(c)(3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy. While not specifically pointing out that the terms “debt collector” and “debt” are both stated in the singular in the statute, in its decision the Court discussed the letters in the singular in accordance with that thought. Of interest is also that each of the letters acknowledged that there had need a cease and desist sent to the creditor previously.

The Court went to great pains to point out the language of the statute differentiates it from statutes which use “knows or has reason to know,” such as that a debt is disputed or that a debtor is represented by counsel which allows an argument that knowledge of a client can be imputed to an agent. As a final thought, the case did not mention a third scenario when communication can be made even where there is a cease and desist, 15 USC 1692c (a) . . . or the express permission of a court of competent jurisdiction, such as when the court changes the date for a hearing.

Judge Denies MSJ in FDCPA Case Because Letter Was Sent One Day Before Defendant Learned of BK Filing

A District Court judge in Ohio has denied a defendant’s motion for summary judgment after it was sued for allegedly violating the Fair Debt Collection Practices Act by sending a collection letter three days after an individual filed for bankruptcy protection and one day before it was notified of the filing. More details here.

WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: This case serves as another example of the importance of implementing policies and procedures sufficient to satisfy the bona fide error defense. The FDCPA contains what is known as “strict liability” provisions, which ignore a debt collector’s intent in violating the Act. One of those well-known provisions has been interpreted by many courts to prohibit debt collectors from dunning a consumer in bankruptcy, regardless as to whether the debt collector had any knowledge of the bankruptcy filing. In such circumstances, the collector’s only valid defense will be “bona fide error”, which exempts a collector from liability if the violation was made unintentionally and despite the maintenance of procedures reasonably adapted to avoid the violation. Here, the debt collector did not proceed with the bona fide error defense and instead argued that its lack of knowledge of the consumer’s bankruptcy filing prevented liability. An easy lesson from this case is to weave bankruptcy policies procedures into your collection management system.

Judge Follows Similar Path, Denies MTD in FDCPA Case Over Use of Statutory Dispute Notice in Letter

Following the same path she has already blazed, a District Court judge in New Jersey has denied a motion to dismiss filed by a defendant that was sued for allegedly violating the Fair Debt Collection Practices Act because it did not explicitly state that a dispute must be filed in writing, even thought it used the statutory language from the FDCPA itself. More details here.

WHAT THIS MEANS, FROM RICK PERR OF FINEMAN KREKSTEIN & HARRIS: Nothing about this line of cases from New Jersey and Pennsylvania should surprise anyone at this stage. The United States Court of Appeals for the Third Circuit previously held that section 1692g(a)(4) implies an “in writing” requirement. The jurisprudence has evolved from plaintiff’s attorneys arguing that inclusion of a telephone number in the validation notice “overshadowed” the “in writing” requirement by inviting consumers to call the agency instead of writing, to the newest specious argument that inclusion of the very language of the FDCPA itself is a violation in that it also invites confusion as to whether a dispute needs to be “in writing.” Unfortunately, half of the trial court judiciary in the Third Circuit has bought into this argument. The issue is presently before the Court of Appeals and a decision will be issued at some point in the future (hopefully) putting these claims to bed permanently.

Advocates Share Concerns About Debt Collection in Meeting With CFPB Leadership

Consumer advocates raised a host of concerns related to the proposed debt collection rule and collections in general in a meeting with leadership of the Consumer Financial Protection Bureau, including issues with call caps, not cooperating with credit counseling agencies, and a possible increase in the number of bankruptcy filings. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Consumer advocates did not help their cause by complaining about topics the CFPB proposed rules directly address or by negating the importance for a consumer to repay their debt. Advocates also raised issues about perceived litigation inequalities that only courts can address and ignored the proposed rules’ ban on collectors suing or threatening to sue on time-barred debt. The Bureau should be weighing real harm to debtors against the burdens they place on business as it finalizes the rules.

Agency Accused of Impersonating Attorney, Using Obscene Language During Collection Call

A lawsuit has been filed against a fitness gym and the collection agency the gym placed an account with, for allegedly violating the Fair Debt Collection Practices Act by misrepresenting that the collector was an attorney and by using obscene and profane language during a collection call. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: This is only a complaint that has been filed and no answer has been submitted by the defendants (yet), so let’s add the word “allegedly” before every factual statement. Nonetheless – wow. If the allegations are true, this is one of those collection agency anecdotes that gives a black eye to the industry. I hope that the allegations turn out to be false. The complaint does not specify what “obscene and profane” language was used by the debt collector; it will be interesting to read the deposition of the consumer if the case gets that far. The complaint also states that the collector (allegedly) left a voicemail message for the consumer asserting that the call was regarding “a legal matter.” Not a good fact, if true – voicemail messages can be kept and later played for a jury.  

Also, this lawsuit involved a consumer who (allegedly) moved from North Carolina to Florida and could no longer use her gym membership. Despite this, the gym (again, allegedly) continued to charge her a membership fee.  Is there any wonder why many states have consumer protection laws directed specifically to gym memberships? 

Not Explicitly Stating Dispute Has to be Filed in Writing Does Not Rise to Level of FDCPA Violation, Appeals Court Rules

The Seventh Circuit Court of Appeals ruled yesterday that the oversight of not mentioning in a collection letter that disputing a debt had to be made in writing does not rise to the level of suffering an injury under the Fair Debt Collection Practices Act and affirmed a lower court’s dismissal of a lawsuit against a collection agency. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This is a very good decision from the 7th Circuit Court of Appeals (governing federal courts in Illinois, Indiana and Wisconsin), which will hopefully pave the way for other courts throughout the country to dismiss mindless FDCPA lawsuits concerning minor statutory non-compliance issues, where plaintiff fails to allege they suffered harm as a result of the alleged violation. Previously, the 7th Circuit Court held that with regard to a consumer’s right to bring FDCPA claims for minor errors by collection agencies as to the FDCPA’s validation notice requirement (the 1692 “g” notice), “Congress instructed debt collectors to disclose this information to consumers, period.” (See, Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 319 (7th Cir. 2016).) In other words, if there was a deviation in a collection letter from the statutory “g” notice mandates, an FDCPA lawsuit was likely appropriate.

However, shortly after Janetos, along came Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). And now, in Casillas v. Madison Associates, Inc., the 7th Circuit held, pursuant to the Spokeo decision, that a minor violation of the FDCPA’s 1692g validation notice mandates is not automatically actionable unless the plaintiff can show that the violation has caused concrete harm. This is a large step away from the 7th Circuit’s previous hard-line positions, and good news for debt collectors facing validation-notice violation claims in the 7th Circuit.

Compliance Caveat: The more risk adverse practice, of course, is to scrupulously follow the mandates of the FDCPA and the FDCPA’s “g” notice requirements in collection letters. Even after the Spokeo decision, various courts in other jurisdictions have held that deviating from the statutory mandates of the FDCPA’s 1692g notice gives rise to a viable FDCPA claim. That is why it makes sense to have your letters reviewed by capable letter review experts. Although you may win a war against some consumers in certain jurisdictions, the costs involved in such a win may dwarf the triumph. Also, in light of the 7th Circuit’s recent Casillas v. Madison decision, you can bet that the plaintiff’s bar has already strategized how to tweak allegations in a complaint so as to avoid the Spokeo pleading traps.

Judge Lowers Attorney Award in FDCPA Case by 62%

A Magistrate Court judge in Wisconsin has cut the amount sought by plaintiff’s attorneys who were awarded summary judgment in a Fair Debt Collection Practices Act case by nearly two-thirds, lowering both the hourly rate and the number of hours awarded that were submitted by the plaintiff.  More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW & CULBERTSON: Fee-shifting statutes provide plaintiff attorneys with leverage; however, this case provides a good example of how the defense can try to even the playing field. In Hensley v. Eckerhart, 461 U.S. 424 (1983), the U.S. Supreme Court identified thirteen factors that courts should consider in exercising their discretion on calculating fee awards.  Those factors include: (1) the degree of success obtained; (2) the time and labor required; (3) the novelty and difficulty of the question; (4) the skill requisite to perform the legal service properly; (5) the preclusion of employment by the attorney due to the acceptance of the case; (6) the customary fee; (7) whether the fee is fixed or contingent; (8) any time limitations imposed by the client or the circumstances; (9) the amount involved and the results obtained; (10) the experience, reputation, and ability of the plaintiff’s attorney; (11) the “undesirability” of the case; (12) the nature and length of the professional relationship with the client; and (13) awards in similar cases.  Spuhler focused on the experience, reputation, and ability of the plaintiff’s attorneys prong to reduce the fee award by sixty percent because “it should not have taken them over $200,000.00 to litigate this FDCPA case.”  In cases where settlement is not an option, the defense should consider utilizing Fed. R. Civ. P. 68 and offers of judgment, as well as examining all the Hensley factors for their applicability. 

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

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