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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Appeals Court Affirms Lower Court’s Decision in FCRA Dispute Case
The Court of Appeals for the Ninth Circuit has affirmed a lower court’s ruling that a credit bureau did not violate the Fair Credit Reporting Act and was not obligated to reinvestigate disputed claims on an individual’s credit report because the individual did not directly submit the request. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: The industry gets a nice (yet very qualified) win inWarner v. Experian Information Systems. The Ninth Circuit Court of Appeals limited its decision to the facts before it, but it still gives collectors strong arguments to ignore credit repair organizations that blitz us with repeat disputes.
The Fair Credit Reporting Act (“FCRA”) requires both credit reporting agencies and data furnishers (e.g. collection agencies that credit report) to reinvestigate the circumstances of a reported debt when a consumer disputes the debt and requests such an investigation. Consumers and their credit repair organizations regularly bombard collectors with repeated disputes on the same accounts for the same consumers. When that occurs, the FCRA does not have a mechanism by which a furnisher can simply ignore the repeat request. If the dispute is sent directly to the collector, the FCRA permits the agency to forego the reinvestigation but requires a response to the consumer identifying the dispute to be frivolous or irrelevant and why. That, of course, still means collectors devote a lot of time and resources to frivolous disputes. Even worse, when the consumer disputes through the credit reporting agency, the FCRA does not allow for disputes to be considered “frivolous.” That means agencies are required to reinvestigate each time they receive a repeated dispute.
Warner may be a beckon of light and a promise of a better tomorrow. In that case, a credit repair organization Go Clean Credit sent Experian a dispute and request for investigation. Experian responded by saying the consumer needed to contact it directly. Go Clean Credit continued to send disputes to which Experian did not respond. The consumer filed suit under § 1681i, the section of the FCRA under which a credit reporting agency shall perform an investigation upon receiving a dispute.
Experian argued that it had no duty to respond to disputes made by Go Clean Credit because § 1681i says the dispute must come from the consumer “directly.” The consumer signed a power of attorney authorizing the credit repair organization to send the request on her behalf. Experian revealed, however, the consumer had no role in preparing the dispute or investigation request, did not review it, and agreed that all debts were valid. The Ninth Circuit, which is not always awesome for our industry, found Experian had the right to ignore the disputes and investigation requests because they did not come from the consumer directly.
To prevent us from getting too excited, the court specifically limited its opinion when the consumer “played no role in preparing the letters and did not review them before they were sent[.]” The court added it was not deciding how it would rule if the dispute was sent by the consumer’s attorney or a family member or if the consumer first approved a letter sent by a credit repair organization.
While that limitation leaves open some questions and the case related to a credit reporting agency rather than a collector, Warner strongly supports a debt collection agency ignoring disputes from credit repair organization, which could be significant especially for smaller agencies. The section of the FCRA that addresses disputes made to furnishers also requires consumers to provide disputesdirectly to the furnisher, so the same logic applies.
Overall, this a favorable case for the industry. From a practical standpoint, it’s not all wine and roses. There is still risk in ignoring disputes from credit repair organizations. If you do, to some extent you will, to quote Colonel Nathan R. Jessup, “roll your dice and take your chances.” The consumer could sue asserting (s)he reviewed the dispute first. While we know that such a review is unlikely, we do not yet know how a court would rule if the consumer actually did review the dispute before it was sent. And if the consumer lied in the complaint about review the dispute, you will not know that until you litigate the case through discovery. That said, Warner provides collectors legal authority if they decide to save time and money by ignoring disputes sent by credit repair organizations.
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Seventh Circuit Breaks From Two Other Courts, Rules Percentage-Based Fees Covered as ‘Costs’ Under FDCPA
The Court of Appeals for the Seventh Circuit has upheld a lower court’s ruling that said a collection agency did not violate the Fair Debt Collection Practices Act by charging a fee to an individual under the language of the original agreement between the creditor and the individual. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: What a breath of fresh air!
The Seventh Circuit just applied common sense to the question of whether it is proper to add on percentage-based collection fees. Here, the consumer’s underlying contract contained a clause that authorized the adding on of “any cost of collection.”
Accordingly, the Seventh Circuit affirmed the lower court’s decision that in turn had found no violation when a collection agency said in an initial notice that the consumer owed the amount of the debt, plus a percentage-based collection charge.
Interestingly, the Seventh Circuit chose to directly confront the Eighth and Eleventh circuits, which previously had held precisely to the contrary. Instead, in this Opinion the Seventh Circuit concluded that a percentage-based collection fee is a “cost” within the meaning of the subject contractual language.
As the court put it: “In doing so, we acknowledge that we depart from two of our sister circuits. In Kojetin v. C.U. Recovery, Inc., the Eighth Circuit held that a debt collector ‘violated the Act by adding the collection fee based on a percentage fee rather than on actual costs when [the debtor’s] agreement with the credit union provided she was liable only for actual costs.’ . . . [And] In Bradley v. Franklin Collection Service, Inc., the Eleventh Circuit said the same of a contract that allowed for “costs of collection, including a reasonable attorney’s fee.”
The Seventh Circuit boldly concluded: “For our purposes, the language at issue in those cases [Kojetin and Bradley] was materially indistinguishable from the contract at issue here. We nonetheless disagree with those holdings.
How’s that for applying good old common horse sense. But remember the Seventh Circuit only governs Illinois, Indiana and Wisconsin. So if you are collecting in those states from consumers who executed contracts with the “magic” cost add on language provision, this Court just confirmed that percentage-based fees can indeed be added to the debt.
N.Y. Governor Signs Pair of Data Breach Bills Into Law
The governor of New York yesterday signed into law two bills that aim to do more to protect consumers in the event their information is compromised in a data breach and applies to any company that possesses the information of a New York resident, regardless of whether the company conducts business in New York or not. More details here.
WHAT THIS MEANS, FROM SCOTT WORTMAN OF BLANK ROME: The newly minted SHIELD Act expands data breach notification requirements by covered entities for New York residents. In addition, SHIELD correctly premises the Act on the fact that a breach doesn’t have to be malicious. A data breach occurs when any sensitive information is exposed whether maliciously or innocently, to an unauthorized source. Still, notwithstanding the name and the press release promising New Yorkers “peace of mind,” SHIELD does not seem to offer any new mechanism for stopping hacks or mitigating the likelihood of suffering a breach that exposes non-public personally identifiable information.
Regarding the Identity Theft Prevention and Mitigation Services Act, the press release reports that the legislation “requires a credit reporting agency that suffers a breach of information to provide five-year identity theft prevention services.” In contrast to the release, the Act specifically provides for identity theft prevention services for a period not to exceed five years and allows the CRA to investigate itself to determine whether such services are required.
For the credit and accounts receivable management industry, these new Acts provide additional incentive to continually update breach notification requirements, and to identify and assess a respective company’s cybersecurity risk profile, while determining the maturity of cybersecurity management and response capabilities. Likewise, if a company uses a vendor, the company must receive written contractual assurance that the vendor follows these guidelines, and the company should monitor the vendor accordingly.
One final point… it might be prudent to learn from other industries that share Threat Intelligence (“TI”) in order to best understand the threats to an organization based on available data points. By sharing resources on verified threats, it allows for a more holistic understanding of actual threats to a similar environment.
‘Kingpins’ Barred From Industry, To Pay $60M in Fines
The Consumer Financial Protection Bureau and the Attorney General of New York have reached a settlement with two individuals referred to as collection “kingpins” and a network of companies, with fines totaling $60 million and permanent bans from ever operating in the collection industry again. More details here.
WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: Despite the change in leadership at the top, the CFPB has not shied away from going after bad actors in the industry. The two individuals – Douglas MacKinnon and Mark Gray – were sued jointly by the CFPB and the New York Attorney General and accused of almost every debt collection scam known. According to the complaint, the two were culpable for acts of extortion, fraud, rip-offs and a variety of other nefarious activities. The CFPB’s settlement with them has two aspects. First, the defendants are subject to civil penalties of up to $60 million (it remains to be seen how much of that is collectible). Second, they received lifetime bans from the debt collection industry.
I think everyone reading this newsletter will agree that the CFPB and NY AG did the right thing with this enforcement action. This instance is a good reminder that we shouldn’t only rely on regulators to police wrongdoing. Within the credit and collections industry, we all share a responsibility to root out bad actors and report criminal activity. Doing so helps legitimize those who do things the right way, as well as fostering a culture of compliance within our organizations. Ridding our industry of bad behavior will go a long way towards improving the reputation of debt collectors in the national eye.
Collector Pleads Guilty to Scamming Individuals to Make Payments on Fake Debts
A Buffalo-area man is facing up to 20 years in prison after pleading guilty yesterday to charges of conspiracy to commit wire fraud for his role in a collection scam. More details here.
WHAT THIS MEANS, FROM MATT KIEFER OF THE PREFERRED GROUP OF TAMPA: It’s nice to see bad actors in the collections industry get taken down, because they often make it harder for the rest of us doing the job of recovering money in a compliant and professional manner. Cases like these, where a rogue collector and co-conspirator in this case, Michael Dudley, was collecting on invalid debt and using unfair and deceptive practices, including violating federal bankruptcy law, make the public more suspicious and less likely to pay on a legitimate debt collection call. Alan Ceccarelli, the owner and manager of the operation already has been sentenced in this case and will have 72 months to think about the consequences of his bad actions. Maybe longer sentences would further deter such illicit activity in the future.
Industry Group Joins Advocacies in Seeking Comment Period Extension
An industry trade association, in conjunction with two consumer advocacy groups, have filed a request for a 90-day extension to file comments related to the Consumer Financial Protection Bureau’s proposed debt collection rule. This marks the first time that an organization from the financial services industry has made such a request. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: Notwithstanding the requests for a longer extension, on Thursday, August 1st, the Bureau extended the collections NPRM comment deadline by 30 days. The new comment deadline is now September 18. In doing so, the Bureau appears aimed at moving the rulemaking forward expeditiously and further extensions seem very unlikely. Indeed, at a recent industry summit, Bureau representatives suggested that Director Kraninger strives to adhere to deadlines and that the final rulemaking is likely to be published in early summer 2020. The shorter extension granted by the Bureau appears aimed at continuing towards that deadline.
Judge Grants MSJ For Defense in FDCPA Letter Case
A District Court judge has granted summary judgment to a defendant accused of violating the Fair Debt Collection Practices Act, going as far as to suggest “that this case may be lawyer driven.” More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: Over the past few weeks, we have seen a few “benchslaps” directed at lawyers bringing FDCPA cases. The judges issuing these opinions have called the cases “lawyer driven” or “lawyer’s cases,” noting that they are filed to benefit the lawyers bringing the claims rather than the consumers the FDCPA was designed to protect. One judge in the Eastern District of New York commented that these cases actually hurt consumers in the long run by driving up the cost of credit. It is nice to see that some courts are as frustrated as we are with lawsuits that push the envelope, but the occasional benchslap is unlikely to deter lawyers from testing their theories in the hope that other judges will disagree. Opinions like these can be useful when you are forced to fight similar cases.
Plaintiff Says He Was ‘Roboblasted’ With Collection Calls, Leading to TCPA Class-Action
A defendant is being accused in a class-action suit of violating the Telephone Consumer Protection Act by allegedly calling an individual’s home phone 30 times per day, on consecutive days, after the individual revoked consent to be contacted on his cell phone, part of a campaign where the plaintiff was “roboblasted” with collection calls to his home and cell phone by the defendant. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: The alleged fact pattern in Dmytriw v. Comenity Bank is one frequently seen for collection calls. Plaintiff asserts multiple calls received over a short time period post-revocation. However, the Bank’s records do not reflect a revocation, but, instead, reflect a “wrong number” disposition. For certain industries, a “wrong number” disposition may be enough of an indicator to push that number onto an internal do not call list, although Courts across the country have made clear that revocation and a request to stop should be expressed plainly. But for collection calls, and the types of responses frequently received, companies are doing their best to respond to the actual request or statement as received (i.e., Plaintiff did not ask the Bank to stop calling, he or someone who answered simply stated it was a wrong number). It’s a no-win situation where Plaintiffs are taking advantage of somewhat amorphous language to advance an argument that he or she revoked consent when in fact no STOP request was received. From a compliance perspective, it’s important to think about how one’s call representatives will respond to the various responses and then how the company will document and further respond to such responses. One suggestion is to flag such accounts for higher level review when a representative receives multiple “wrong number” statements.
Collector Pleads Guilty to Scamming Individuals to Make Payments on Fake Debts
A Buffalo-area man is facing up to 20 years in prison after pleading guilty yesterday to charges of conspiracy to commit wire fraud for his role in a collection scam. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: It is always good when bad players are caught. Unfortunately, it is these bad players who continually give our industry a bad name. Despite the poor image of our industry, so many companies and law firms work hard to remain compliant with consumer protection statutes and treat consumer with the dignity and respect they deserve. This is why I think it is imperative that industry applaud the CFPB for its proposed debt collection rules to help provide industry with clear guidance; the proposal is not perfect and there are flaws (which should be commented on), but the CFPB’s effort to publish fair regulations should only help the industry’s image.
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