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.
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Class Certification Denied in FDCPA Case Involving Miller Safe Harbor Language
A District Court judge in Michigan has denied a motion to certify a class action against a defendant that was sued for violating the Fair Debt Collection Practices Act by including language in a collection letter mentioning that late fees and interest may alter the total amount owed. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: In order to avoid omitting language that is required in our letters, especially validation notices, we create templates that include the same language for each letter. While that has the benefit of always including the language we believe is needed, the risk of a consumer class action increase. Generally speaking, a court will certify a class of consumers when those consumers received the same letter with the same language that violates the FDCPA in the same way causing harm to all consumers receiving the letter.
In Sabah Jaber v. GC Services Limited Partnership (E.D. Mich. June 24, 2019), the Court denied a motion for class certification on the grounds that the letter language was the same, but some of the proposed class members would not have suffered any harm. In that case, the letter contained the interest safe harbor language from Miller v. McCalla: “Because of interest, late charges, and other charges that may vary from day to day, the amount owed on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your payment, in which event we will inform you.”
While there is some disagreement among courts, that language is arguably needed in validation notices if the debt accrues interest or other charges. Recent opinions clarified that this language is improper if interest is not accruing because it would be inaccurate. The plaintiff in Jaber made such an argument. The court denied certification because the factual question was whether the collector was attempting to collect interest on accounts that have been charged-off, and some of the consumers included in the class definition had debts that had not yet been charged-off. Therefore, even if the court ultimately found interest was not accruing on charged-off accounts and the letter should not have included the interest safe harbor language, the certification was improper because the class included accounts where interest was properly accruing because they were not yet charged off. In addition, the court said an individual analysis of each account would be necessary to determine whether the account was charged-off, which precludes certification.
The takeaways are twofold. First, the best practice is for your validation notices (if not all letters stating the amount due) to include the interest safe harbor language but only if interest is accruing and/or other types of charges vary from day to day and could change the amount due. That means such language should not be included in any validation notice relating to an account where those charges do not apply. The second lesson from Jaber is that even in class cases alleging letter violations, all is not lost. Focus on all areas where the plaintiff is trying to include consumers in the class definition whose accounts are different and who will not experience the type of harm alleged by the class representative.
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Appeals Court Overturns Lower Court Ruling That Exempted Student Loan Servicer From State Law Claims
The Court of Appeals for the Seventh Circuit has overturned a lower court’s decision that the federal Higher Education Act exempts companies servicing student loans from claims that those companies violated state law. More details here.
WHAT THIS MEANS, FROM VIRGINIA FLYNN OF TROUTMAN SANDERS: In Nelson v. Great Lakes Educational Loan Services, Inc., the Seventh Circuit Court of Appeals reversed a lower court’s decision that the federal Higher Education Act (“HEA”) exempts companies servicing student loans from claims that those companies violated state law.
In Nelson, the defendant was accused of violating the Illinois Consumer Fraud and Deceptive Business Practices Act by making statements on its website such as “Our trained experts work on your behalf,” and “You don’t have to pay for student loan services or advice,” because “Our expert representatives have access to your latest student loan information and understand all of your options.”
A District Court judge granted the defendant’s motion to dismiss, ruling that the HEA – § 1098g – pre-empted any state law claims made by the plaintiff. But the Seventh Circuit determined the lower court’s ruling was “overly broad” and noting that the borrower alleged “false and misleading statements that [the servicer] made voluntarily, not required by federal law,” including the servicer’s recommendation of forbearance as the best option for the borrower’s financial trouble. These representations went beyond mere failure to make disclosures required by federal law, and were “affirmative misrepresentations in counseling.” The Court found, therefore, that express preemption did not apply under § 1098g of the HEA. The Court also held that field and conflict preemption did not apply.
Notably, among the affirmative misrepresentations that the Court identified in its decision were statements on the servicer’s website about its “expertise” and “devotion” to borrowers’ best interests. While student loan servicers may provide information to borrowers dispelling myths about third-party “debt relief” companies, the Nelson opinion cautions companies when communicating with borrowers about the servicer’s role and capabilities.
FTC, NY AG Reach $676k Settlement With Shaevel
The men behind Hylan Asset Management have agreed to pay $675,575 in fines and shut down the company after being accused last year of buying and selling millions of dollars in fake debt portfolios and Worldwide Processing Group LLP, one of the agencies used by Hylan to collect on its debts, has agreed pay a fine of $118,000 and is barred from engaging in deceptive or misleading collection practices. More details here.
WHAT THIS MEANS, FROM MATT KIEFER OF THE PREFERRED GROUP OF TAMPA: I am not going to rush to judgement but Hylan Asset Management having agreed to pay $675,575 to settle is much cheaper than fighting the state and federal government with unlimited resources. If what they are accused of doing is true, then this will be a great message to other rogue actors out there that we, as an industry, fight to improve the negative connotations associated with collections. Making $24M on debt that is bought for pennies or less on the dollar is very enticing and is legal – IF THE DEBT IS VALID AND CAN BE COLLECTED ON. But, if the allegations are true that the debts were not valid to begin with, then ask yourself: “Why isn’t the FTC and New York AG’s office going after the company that sold the debt to Hylan”? From the article: The government alleged that Hylan continued to buy debt from some unscrupulous companies even after Shaevel realized they had sold his company fraudulent, or phantom debts. Maybe the FTC and NYAG’s office will continue to go up the chain.
How many first party creditors (I am thinking hospitals and medical groups) know for certain that balances on older debts that have been worked and reworked by different entities including billing and one or more debt collection agencies are truly correct? It is critical that any agency working old purchased portfolios be able to secure backup and validate debt, and if there is any doubt, leave it out.
Appeals Court Hears Arguments in QR Code Case
Arguments were heard yesterday before a panel of judges in the Third Circuit Court of Appeals in the case of Dinaples v. MRS BPO, in which it was alleged that the defendant violated the Fair Debt Collection Practices Act by including a Quick Response, or QR, Code in a collection letter sent to the plaintiff. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: With a “secret decoder ring” you too can snoop on US mail addressed to someone other than you! That’s the issue before the Third Circuit. A QR Code was visible on the outside of a collection notice. The code itself says nothing unless and until a person activates a smart phone app to “decode” it. And then, and only then, does the dastardly interloper discover that there is an account number contained in the QR Code. Frankly, so what. How does an account number mean the communication is from a debt collector.
This case is a remedy in search of a harm. How does this scenario in any way further the purposes of the FDCPA. It doesn’t. As one of the Justices aptly mused during the hearing (after noting the FDCPA does allow a collection agency to put its name on the return address so long as the agency’s name doesn’t say it’s in debt collection) – “Google that business and see if they are collectors.” If putting an agency’s benign name on a return address is compliant, how is a code buried in a QR code an issue? Again, it isn’t and the summary judgment granted to the plaintiff should be reversed.
CFPB Files First Amicus Brief, Supporting Plaintiff in FDCPA SOL Case
As noted by the team at Ballard Spahr, the Consumer Financial Protection Bureau has filed its first amicus brief in the Kraninger era, in a Fair Debt Collection Practices Act case before the Fourth Circuit Court of Appeals. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: The Bureau’s recent filing in this case highlights an ongoing trend within the Kraninger-led Bureau: a continuing (and perhaps expanding) regulatory focus on collections. Given the recent NPRM, newly-filed collection litigation lawsuit alleging similar positions as those rejected in Weltman, and specific attention to collection issues in both creditor and third-party examinations, it seems that collections remains front and center with Bureau leadership across various fronts. If there was any question about whether the Bureau had moved on from prior collection initiatives, recent activities suggest that at least some of those initiatives are gaining traction within the Bureau. As such, we should expect to see collection-related issues remain at the forefront of the Bureau’s activities into 2020 and beyond.
Judge Grants MSJ in FDCPA Case Over Agency’s Name
A District Court judge in Washington has granted a defendant’s motion for summary judgment after it was sued in a class-action for allegedly violating the Fair Debt Collection Practices Act because the company’s name gave the false impression that the company was in some way associated with the state of Washington. More details here.
WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: Thankful am I to read common sense decisions from judges. In this matter, the plaintiff asserted that the name of the collection agency – State Collection Service, Inc. – somehow implied that the agency was affiliated with a state government in violation of the FDCPA. One thing that I like – other than the ultimate decision – is that the court (properly) determined the issue was one to be decided at the summary judgment stage, and not reserved for a jury determination at trial. Too often judges will punt a decision to the trier of fact; in this case, it could have denied the motion by stating only a jury should determine whether a least sophisticated consumer could reasonably be misled by the agency’s name. Here, the court aptly met its responsibilities.
In determining whether the agency’s name violated the FDCPA, the court used two analyses. First, it looked at whether the least sophisticated consumer would be misled by the name. Second, it reviewed whether the alleged misrepresentation met the “materiality” standard for a violation of the FDCPA. Put otherwise, a purported misrepresentation made by a debt collector must be “material” to the collection activity (and whether it induces, or tends to restrict, the consumer’s response). Benign representations thus are not actionable. The court found that the agency’s name “State Collection” did not imply affiliation with a governmental entity, and thus dismissed the claim.
The court further noted that omission of the corporate designation “Inc.” in the name of the collection agency is also not actionable. That’s obviously a good thing, because a contrary outcome would mean all sorts of agencies would be violating federal law simply through failure to state “Inc.,” “LLC,” “Corp.” or other suffixes in a phone call.
One other thought – the court’s opinion also notes that the plaintiff phoned the collection agency after consulting with an attorney. I would like to hear a copy of that call recording, as it seems as though the plaintiff was attempting to bait the collector into a violation of law.
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