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Compliance Digest – August 19

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.

Appeals Court Rules Emailed Validation Notice Not a ‘Communication’ Under FDCPA

The Court of Appeals for the Seventh Circuit has issued its long-awaited ruling in Lavallee v. Med-1 Solutions, affirming a lower court’s ruling that sending validation notices via email does not meet the Fair Debt Collection Practices Act’s definition of “communication.” More details here.

WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: This long awaited opinion confirms some common sense emailing principals already embraced by the CFPB in the NPRM. 

  • One way to successfully provide the validation notice in an initial communication by email is to include the notice in the body of the email that the consumer can read and refer back to later. Med-1 did not include the validation notice  in the body of the email sent to Plaintiff; instead, to read the disclosures Plaintiff would have had to click on a link and take five additional steps to open a pdf file with the disclosures. (Note that the CFPB NPRM also proposes some best practices that serve as successful bona fide error defenses for a third party disclosure claim if a third party were to see debt collection information in the body of an email). 
  • Be careful when using hyperlinks and pdfs to provide required disclosures if consumers do not yet know that you are a legitimate company. Plaintiff didn’t click on the link to access the validation rights. Med-1 knew that Plaintiff did not click on the link and Plaintiff indicated that she never saw the email at all. As the lower court mentioned, it is not advisable for anyone to click on links from unknown senders (cyber security 101). 
  • Limited content communications may get tagged as spam. The Seventh Circuit held the language in the email did not constitute a debt collection communication because nothing in the email conveyed information about the debt – the email only contained three pieces of information three pieces of information: “the sender’s name (Med-1 Solutions), its email address, and the fact that it “has sent … a secure message.” This is not enough to be a communication.   In fact, maybe Plaintiff didn’t see the email because with such generic information it could have been tagged as spam.  Even thought Med-1 lost this case, it’s a win for the industry and consumers who are continuing to demand collectors implement modern communication tools.

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Judge Dismisses TCPA Claim Because Plaintiff Couldn’t Prove Consent was Revoked

Saying you revoked consent to be contacted on your cell phone by an automated telephone dialing system is not going to be enough to keep your claims that someone violated the Telephone Consumer Protection Act from being dismissed, at least in Ohio, following a ruling from a District Court judge. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Whiteacre is a great example of poor pleading and what a truly conclusory allegation is. The Court dismissed his TCPA case because plaintiff only “expressed his lack of consent to automated calls.” The Court stated this allegation was conclusory and simply recited an element of a TCPA cause of action. Plaintiff needed “further factual enhancement,” the Court decided.

Texas Judge Rules Predictive Dialers Fall Outside Definition of ATDS, Countering Marks

A District Court judge in Texas has granted a defendant’s motion to dismiss claims it violated the Telephone Consumer Protection Act by calling the plaintiff on her cell phone without her consent using an automated telephone dialing system. What is interesting about the ruling is that the judge determined that predictive dialers fall outside the definition of ATDS following the ruling in ACA International v. FCC. More details here.

WHAT THIS MEANS, FROM XERXES MARTIN OF MALONE FROST MARTIN: Judge Lynn’s order gives a great lesson on statutory construction and the English language to reach the intended definition of an ATDS. Hopefully this case will lead to other courts driving the TCPA and litigation back to its true target, telemarketers. Using this case in future dispositive motions has the potential to assist other courts in hitting their targeted Marks (pun intended). 

Judge Grants MTD in FDCPA Case Over Letter Sent to Attorney

A District Court judge in California has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by sending a collection letter to the plaintiff through her attorney, which included a demand for payment and a payment coupon. More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: In Swartzlander v. Capital Management Services, LP. (S.D. Cal. 2019)a collection agency sent a consumer’s attorney a collection letter that Plaintiff alleged violated the FDCPA. Capital Management Services (“CMS”) filed a motion to dismiss the claim asserting that sending a letter to a consumer’s attorney is not an FDCPA violation because the attorney is not a least sophisticated consumer. The sole issues addressed by the Swartzlander court was whether sending the letter at issue could give rise to an FDCPA violation if received if first delivered to the consumer’s attorney.

In granting the Motion to Dismiss, the Swartzlander court heavily relied on Guerrero v. RJM Acquisitions LLC. In Geurro, the Ninth Circuit held that a letter given to an attorney cannot give rise to an FDCPA violation. It found, “[a] consumer and his attorney are not one and the same for purposes of the Act. . . . . Congress viewed attorneys as intermediaries able to bear the brunt of overreaching debt collection practices from which debtors and their loved ones should be protected. . . . Congress did not view attorneys as susceptible to the abuses that spurred the need for the legislation to begin with . . . .”

This is good news for agencies who can use the consumer’s attorney as a lawyer of protection if a letter or other information may otherwise violate the FDCPA. Collectors should be mindful, though, different circumstances may yield different outcomes. When communicating with an attorney, the “competent attorney” standard is used rather than the unsophisticated consumer standard. In Demarais v. Gurstel Chargo, P.A., the Eighth Circuit explained that a collector can violated § 1692e of the FDCPA when communicating with an attorney if even a competent attorney could be misled. In that case, one of the allegations was that a collection attorney threaten to file suit and never truly intended to do so. The Court found that even a competent attorney could be misled by such a misrepresentation.  Therefore, while there are some addition protections when communicating with and/or through a consumer’s attorney, that protection is not absolute.

Bill Introduced in Senate to Give Carriers More Power to Automatically Block Calls

A bipartisan bill has been introduced in the Senate that would give the Federal Communications Commission the authority to allow carriers to automatically block calls believed to be “highly likely to be unlawful” while also providing a safe harbor to carriers in the event a legitimate call is accidentally blocked. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: “Illegal telemarketing robocalls continue to be one the most complained about consumer issues. The recent DART legislation represents yet another legislative effort to reduce illegal telemarketing robocalls, coming on the heels of STIR/SHAKEN and the TRACED Act. Coming into an election year, it is not surprising to see members of Congress pushing popular causes – and stopping intrusive and unauthorized marketing and other scam calls certainly fits that bill. However, what is also needed is common sense rules and guidance for legitimate companies to rely on in attempting to contact consumers for legitimate purposes. That initiative seems to have stalled completely and that is frustrating for members of the financial services industry who are continuing to face an onslaught of expensive TCPA lawsuits and uncertainty  over how and when they can communicate without violating the TCPA. While stopping illegal robocallers is an important cause, it cannot come at the expense and detriment of legitimate companies attempting to deliver legitimate communications.”

FCC Enacts Rule Banning Spoofing of International Texts and Robocalls

The Federal Communications Commission last week voted to approve a proposed rule that will extend prohibitions against robocalls that were passed last year in the Ray Baum’s Act to text messages and international calls. Previously, the anti-spoofing prohibitions in the Ray Baum’s Act only applied to domestic robocalls. More details here

WHAT THIS MEANS, FROM SCOTT WORTMAN OF BLANK ROME: Pursuant to statutory amendments, the FCC has prescribed rules expanding its authority to combat malicious spoofing activities to cover communications originating outside the United States directed at recipients within the United States. There are several interesting characteristics to the Report and Order, and I’d be remiss not to at least mention the exclusions, such as non-MMS or SMS messages sent using IP-enabled messaging services. Yet, I’m most intrigued by the FCC’s expanded authority to exercise extraterritorial jurisdiction. It remains to be seen whether the FCC will attempt enforcement outside the current parameter of collaborating with international counterparts to coordinate each other’s efforts to combat telecommunications fraud.

Creditor Disclosure Does Not Violate FDCPA, Judge Rules

A District Court judge in Missouri has granted a motion for judgment on the pleadings on behalf of a defendant that was sued for allegedly violating the Fair Debt Collection Practices Act by including a disclosure from the original creditor that the individual who was sent a collection letter may receive less favorable credit terms in the future if she accepted a offer to settle a debt for less than the full amount owed. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: This is a refreshing decision based upon something that is unfortunately rare in consumer litigation – common sense. The district judge found that a client-mandated statement regarding settlement terms is not confusing and does not overshadow the consumer’s rights under the FDCPA. Nothing in the letter at issue would cause a typical consumer to not understand his or her rights under the FDCPA, and the judge acted appropriately in finding that even the least sophisticated consumer would not interpret the statement as creating an expectation of more favorable terms by paying in full. An important point to note is that the judge (correctly) assessed the letter in its entirety rather than picking off isolated components for legal review. 

I think most collection agencies can agree that larger institutional creditors often have more bargaining power in the business relationship. This can frequently result in the creditor dictating specific statements or disclosures to include in collection letters, or custom talk-offs in consumer conversations. Collectors are sometimes put in a difficult situation – wanting to provide good client service on one hand, and striving to lower legal risks on the other. This can be a difficult balance to achieve and it is important for agencies to build dialogue with their creditor/clients to work through these issues. 

Calif. Appeals Court Rules Right-to-Cure Provision of RFDCPA Can Apply to Point-Size Problems in Letters

In a non-precedential unpublished opinion, the California Court of Appeals has ruled that the right-to-cure provision in the Rosenthal Fair Debt Collection Practices Act can be applied to alleged violations where the type size of a collection letter is too small, but nonetheless reversed a lower court’s ruling dismissing the case because a motion for summary judgment drafted by the defendant went too far. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF CARLSON & MESSER: The Timlick v. NCB Management Services, Inc. case is a mixed bag for the industry. The Timlick case involved the font size on the California notice in the initial letter, which was alleged to be too small. NCB Management sent a curative letter with the California notice in the appropriate font size. Although the Timlick case is not published, the California Court of Appeals did rule that the Rosenthal FDCPA’s curative letter defense was not stricken when the FDCPA was incorporated into the remedies of the Rosenthal FDCPA when Civil Code section 1788.17 was enacted. This unpublished state court decision may give additional weight to the Ninth Circuit’s decision in Afewerki v. Anaya law Group, 868 F.3d 771 (9th Cir. 2017), which also interpreted state law Rosenthal FDCPA and concluded that the curative letter defense is a viable defense under the Rosenthal FDCPA. More importantly, the Timlick Cort also held that incorrect or missing information in an initial letter can be cured with a curative letter, defeating the argument that information that should be in an initial letter cannot be cured by providing it in a subsequent letter. The Timlick Court distinguished the earlier Ninth Circuit decision in Romero v. Department Stores National Bank, 725 Fed. Appx. 537 (9th Cir. 2018), finding that under the specific circumstances of the Timlick case, there was no harm caused by failing to use a larger font size in the California notice. The Court explained that if Timlick had claimed that missing or incorrect information had caused him to fail to exercise or waive his rights. These two holdings address two of the most common arguments against the curative letter defense. The Court’s explanation is a cautionary tale to make sure that any curative letter ensures that the consumer has not lost any rights because of the violation. 

However, Timlick was a class action, and the curative letter was only sent to Timlick. Thus, the curative letter defense did not eliminate the class action – it merely picked off the named plaintiff. Many courts frown on such strategic litigation action, and leave the plaintiff’s attorney time to find a new class representative, after the defendant has supplied all the names and contact information for the putative class. This gives debt collectors subject to California’s Rosenthal FDCPA a bright signal to consider curative letters for all effected by a curable mistake to ensure that a defendant has the full protection of the curative letter defense with an individual action as well as any potential class action.

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

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