Compliance Digest – August 26

Every week, 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 Upholds Lower Court’s Ruling in Dismissal of Collection Agency Employee

The Court of Appeals for the Seventh Circuit has upheld a lower court’s decision that a collection agency was justified for firing an employee who stole personnel documents after the employee claimed she was not being paid as much as her male co-workers. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Crime never pays! What happened in this case? Plaintiff claimed that she was discriminated against and paid less than her male counterparts at a collection agency. But plaintiff’s “proof” consisted of performance evaluations plaintiff “stole” from her employer (at least according to her employer). Once the employer learned of this “theft,” plaintiff was suspended and then fired. She sued, the case was tried, and the employer was vindicated and won on all counts. Plaintiff appealed. The 7th Circuit affirmed and dismissed the appeal. The lesson? Who knows why a jury decides a case they way it does. But it’s not surprising that a claim based on “stolen” documents might be viewed unfavorably by a jury.


FTC, FCC Disagree Over Who Should be VoIP Robocall Enforcer

The Federal Trade Commission and Federal Communications Commission are having a tough time figuring out who should be the primary regulator going after individuals and organizations that are making illegal robocalls, according to a published report. More details here.

WHAT THIS MEANS, FROM LAUREN VALENZUELA OF PERFORMANT: Although the Wall Street Journal reports the FTC and FCC disagree about what agency has primary responsibility and jurisdiction over illegal robocalls, let’s not forget the recent collaborations between FTC and FCC over this issue. For example, in March of last year the agencies held a joint policy forum titled “Fighting the Scourge of Illegal Robocalls.” FCC Chairman Ajit Pai remarked that the fight against robocalls requires unity and that “none of us will defeat the scourge alone” since the “unfortunate inventiveness of scammers, technical challenges, and sheer volume of calls are daunting for any one entity to defeat.” He said “working together, we have a better chance.” What has changed between the FTC and FCC? While it may be unclear what agency has the primary responsibility and jurisdiction to reign in illegal robocalls, one thing is clear: many legitimate calls are getting lost in the shuffle as consumers and carriers are trying solutions to combat illegal calls themselves vis-à-vis unregulated call analytics to block calls and call blocking apps. As this discussion has progressed, unwanted calls are often combined with (and in many instances treated synonymous with) illegal robocall calls. There is a significant difference between illegal calls and unwanted calls, and treating them the same is erroneous. First, let’s agree to focus energy on combating illegal robocalls. As a consumer myself, and as a member of the credit and collections industry, here is where I see common ground. Here is where our government has a chance to take a pragmatic approach to accomplish something meaningful. Secondly, both agencies should leverage the jurisdiction they do have to tackle the problem from multiple angles. Lastly, let’s keep the discussion going because illegal robocalls calls are detrimental to consumers and to our credit ecosystem.

Appeals Court Upholds MSJ For Defense After Plaintiff Could Not Prove Debts Were Consumer-Related

This is one of those cases that make me, a non-lawyer, dizzy. The Seventh Circuit Court of Appeals has upheld a lower court’s summary judgment ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act because the plaintiff could not prove the debt was a “consumer” debt even though the plaintiff denied having the debt in the first place. More details here.

WHAT THIS MEANS, FROM RICK PERR OF FINEMAN KREKSTEIN & HARRIS: One of the threshold issues for any FDCPA case is that the underlying credit transaction involved an extension credit for personal, family or household reasons – it must be a consumer credit transaction. This is the plaintiff’s burden to prove. 

Normally, the consumer can simply testify that he used the credit for a personal reason and that is the end of the inquiry. However, if a third party (non-debtor) complains of an FDCPA violation, or a person who claims identity theft, or, as in this case, someone who disavowed knowledge of the obligation in its entirety, then the plaintiff cannot meet her burden and the case is susceptible to dismissal at the summary judgment stage. 

This is an often overlooked defense under the circumstances. But, it can be quite potent. 

Judge Grants MSJ For Defendant in FDCPA Bona Fide Error Case Over Disputed Debt

A District Court judge in California has granted summary judgment in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act because it allegedly did not mark an account as disputed, instead choosing the believe the policies and procedures put in place by the defendant entitled it to the bona fide error defense. More details here.

WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: Pervasive. I can’t think of a more pervasive tactic than for a debtor’s attorney to send a written “dispute” to a debt collector and then pull the debtor’s credit report to see if a suit can be filed under 1692e. Here, the debt collector prevailed in the BFE defense even though it did not identify the “error”, as it had no record of receiving the written dispute? The court noted that the redundant written procedures in place to process incoming mail were sufficient to prevail on the BFE defense.  Here is the takeaway:  ERC had “redundant policies and procedures in place… to ‘properly retrieve[], process[], and record[] all correspondence[s] sent by, or on behalf of, account holders.'” 

Maybe the judiciary gets tired of the manufactured lawsuits? Regardless, all debt collectors should be able to put on this same type of defense. 

N.J. Judge Grants MTD in FDCPA Case Over Dispute Notice in Letter

A District Court judge in New Jersey has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act by sending a letter to the plaintiff that allegedly misled the plaintiff into thinking that the debt could be disputed orally, instead of in writing. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: It’s the latest edition of “As the World Turns” better known as the enduring question for collectors within the confines of the 3rd Circuit:

Does the 1692g(3) notice “Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt, or any portion thereof, this office will assume the debt is valid,” need augmentation by the inclusion of the words “in writing” after “dispute” to comply with the Court’s 1991 decision in Graziano?

In two recent cases we appear to have gotten three different results. In Schwartz v. Sherloq Revenue Sols., Inc., 2019 U.S. Dist. LEXIS 132372 (D.N.J. Aug. 7, 2019) District Judge William Martini noted that Courts in New Jersey have ruled for and against the writing requirement and sided with the majority who have ruled it was not required and found for Defendants. What makes this interesting is that back in May, Judge Martini was faced with the exact same question and in Azizbayev v. Transworld Sys., 2019 U.S. Dist. LEXIS 87148 (D.N.J. May 23, 2019) refused to rule denying without prejudice the defendants motion to dismiss staying the matter “pending decision by the Third Circuit in Cadillo v. Stoneleigh Recovery Assocs., No. 2:17-cv-7472; Bencosme v. Caine & Weiner, 18-cv-07990; or Borozan v. Fin. Recovery Servs., Inc., 17-cv-11542.” Id.  at *4. (Note: Briefing in Cadillo and Bencosme has not started yet and Borazan is currently stayed in the 3rd Circuit pending decisions in cases where it was alleged the inclusion of a phone number overshadowed the validation notice.)

Two days after the Schwartz opinion, in Chromey-Bullock v. Radius Glob. Sols., LLC, 19 U.S. Dist. LEXIS 134245 (M.D. Pa. Aug. 9, 2019) the Court did not follow the majority of the courts sitting in Pennsylvania which have consistently found that the 1692g(3) notice as written is unclear, routinely stating “merely tracking the statutory language is insufficient to comply with [the FDCPA]—the validation notice ‘must also be conveyed effectively to the debtor.'” Henry v. Radius Glob. Sols., LLC, 357 F. Supp. 3d 446, 457 (E.D. Pa. 2019). The norm for these 1692g(3) complaints is to add to 1692g claim that the letter violated 1692e’s prohibition against “false, misleading and deceptive” practices. And it is also the norm for Courts to hold that if there was no violation of 1692g then there cannot be a violation of 1692e. 

In Chromey however the Court introduced a new wrinkle in denying Defendant’s motion to dismiss stating: “The plaintiffs allegations raise a reasonable expectation that discovery could reveal evidence that the defendant’s collection notice was misleading.” Id. at *6. Huh?  Anyone want to guess where this is going? 

Perhaps we should collectively hire an outside firm to conduct polling and ascertain just what the “least sophisticated consumer” standard actually is from the LSC’s perspective? My read of Chromey suggests just that. In the meantime, there is currently no light at the end of the tunnel to signify when the 3rd Circuit will rule again on this issue and at the same time there are probably dozens of pending motions out there in the New Jersey and Pennsylvania courts and we will continue to see decisions going both ways. 

Big Spike in New Lawsuits Filed in July: WebRecon

Executives in the credit and collection industry — especially those working in compliance — who were hoping for a slow, relaxed summer have definitely been disappointed, based on data released yesterday by WebRecon that shows a dramatic uptick in the number of lawsuits filed by consumers. More details here.

WHAT THIS MEANS, FROM LINDSAY DEMAREE OF BALLARD SPAHR: Plaintiff’s attorneys are back from summer vacation. Although the uptick in FCRA filings has been a theme throughout 2019, the spikes in TCPA and FDCPA filings from last month indicate that plaintiff’s firms are not abandoning these claims. In the TCPA context in particular, recent developments have favored plaintiffs: district courts beyond the Ninth Circuit have adopted the plaintiff-friendly ATDS definition of Marks v. Crunch San Diego (see, for example, Allan v. Pa. Higher Educ. Assistance Agency, No. 2:14-cv-54 (W.D. Mich. Aug. 19, 2019)); the FCC’s anticipated attempt to clarify the ATDS definition appears to have lost momentum afterMarks; and, generically-labeled “robocallers” have become targets of late-night television shows and proposed legislation by Congress alike, publicizing the issue for potential plaintiffs in the process. Thus, while the total number of TCPA and FDCPA complaints may be down for 2019, the number of lawsuits is still far from zero and could very well continue to rise in the following months.” 

CFPB Reaches $60M Settlement Over For-Profit School’s Student Loan Practices

The Consumer Financial Protection Bureau has reached a $60 million settlement with the defunct lending arm of a bankrupt for-profit lender, ending a five-year legal battle. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: In 2014, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against ITT Educational Services, Inc. (ITT) in the U.S. District Court for the Southern District of Indiana. The complaint alleged that ITT engaged in unfair and abusive practices in connection with its private loan program, Student CU Connect CUSO, LLC (CUSO), in violation of the Consumer Financial Protection Act of 2010. The CFPB had also alleged that ITT knew that the student borrowers did not understand the terms and conditions of the loans and could not afford them, resulting in high default rates and other negative consequences.

Last week, the CFPB announced a proposed settlement to resolve the lawsuit. The terms of the proposed stipulated order include, among other things, a judgment against ITT for $60 million and an injunction prohibiting ITT from offering or providing student loans in the future.

In June, CUSO agreed that it would not collect on the subject loans, and also waived and relinquished any right or authority to service or collect on the loans. The total amount of loan forgiveness is currently estimated to be $168 million. At the time of its collapse in 2016, ITT had enrolled roughly 43,000 students at 130 campuses. This is big news for student loan servicers and for-profit schools. Clear disclosures continue to be an important and major focus for the CFPB, which has not slowed down as some thought. 

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

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