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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Judge Denies BFE Defense Over Differing Balances in Collection Letter
A collection law firm is not entitled to the Fair Debt Collection Practices Act’s bona fide error defense because it did not have the proper procedures in place to keep a programming mistake from happening, a District Court judge in Ohio has ruled in a bench trial, ordering a judgment in favor of the plaintiff. More details here.
WHAT THIS MEANS, FROM LAURA KNIGHTS OF GULF COAST COLLECTION BUREAU: There are two important things that come from this case. The first is debt collection agencies need to make sure their written policies are reasonably designed to catch non conformities. In this case the collection firm sent a letter to the consumer. The information on the letter did not allow the consumer to determine what he owed and why, as the “Charge-Off Balance” of $663.94 minus “Post Charge-Off Payments & Credits” of $0 did not equal the “Current Balance” of $565.46.
Unfortunately, the collection agency did not have any reasonable procedure in place to catch mathematical errors on its letters. The second item of interest is that the court, while not allowing the collection agency to prevail on the bona fide error defense, did only award the Plaintiff/consumer $500 in statutory damages. The court noted that the collection firm did not intentionally send a letter with a mistake, nor was it threatening and there was no evidence “that this mistake was repeated” to the consumer “in a subsequent letter or telephone call.” The amount of the attorney’s fees and costs to be awarded is to be determined sometime in the fall.
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Plaintiff’s Attorneys Publish Press Release Touting $1.2 Million Settlement With Debt Collector
A group of plaintiff’s attorneys in North Carolina are touting a $1.2 million settlement recently obtained in a case against a medical debt collection agency. More details here.
WHAT THIS MEANS, FROM MATT KIEFER OF THE PREFERRED GROUP OF TAMPA: A $1.2 M settlement against an unnamed medical debt collection agency in North Carolina is yet another reason to ensure you audit your policies and procedures for compliance often and why, although compliance drives up costs, it is absolutely critical. The “class” in this unnamed case consisted of debtors contacted by the agency between 2012 and 2019 that had filed bankruptcy. In this case, the agency had procedures to catch bankruptcy upon new placements, but it did not have procedures in place to catch them after. Many times the agency must rely on its clients to pass bankruptcy notification on to them so that they can stop collection activity, however, everyone knows that some may fall through the cracks, or get dismissed and later reinstated, and the agency is not always made aware.
Every year, when tax season rolls around, many agencies will run tax season settlement campaigns on older accounts. If they use a mail vendor, it is good to have the bankruptcy scrub turned on so that the letter does not get delivered. But it is also wise to run scans for bankruptcy checks at least quarterly on your active accounts. After all, you only pay for “hits” (hopefully) and this will help catch any missed notifications that should have been sent to the agency. While the $1.2M seems like a lot, most goes to the attorneys and there is a net of $660,000 to be split among the affected debtors which means that, as usual, the average debtor will only get about $54.
All 50 State AGs Announce Partnership With 12 Carriers to Fight Robocalls
The attorneys general of all 50 states and Washington, D.C., announced a partnership yesterday with 12 major telecom carriers to join together and fight the proliferation of robocalls through a set of shared “principles.” More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: The ongoing, nationwide crackdown on robocalls continues to pose a significant risk of doing more harm than good. Industry experts and participants predict (and fear) that a significant number of legitimate calls (appointment reminders, credit card fraud notifications, customer servicing calls, etc.) will be blocked as a result of these new initiatives and related technologies. While carriers and regulators continue to acknowledge the need to address this issue and tweak call blocking technologies, to date, it appears that is all that has happened – the issue has been acknowledged but not actually resolved. Added to that is the fact that the term “robocall” as originally defined related to a very narrow and specific type of communication – an unsolicited marketing call – but now has evolved to be the label affixed to almost every unrecognized call that a consumer receives. In my view, part of the “fix” here is to get back to the original intent and definition of that term while taking separate steps to encourage and facilitate legitimate communication efforts between companies and consumers.
Judge Grants MSJ For Defense in Ruling that All Predictive Dialers are Not ATDS’s
A District Court judge in Pennsylvania has granted summary judgment to a defendant that was accused of violating the Telephone Consumer Protection Act by contacting an individual on his cell phone after he had revoked consent to be contacted, because the defendant was not using an automated telephone dialing system. More details here.
WHAT THIS MEANS, FROM MARK ROONEY OF THE ROONEY FIRM: The plaintiffs’ bar has aggressively pushed the boundaries of what constitutes an ATDS since the D.C. Circuit’s ACA International decision (and even more so since the Ninth Circuit’s Marks decision of nearly a year ago). This case represents another win for defendants facing TCPA claims. Across the country, however, results in the district courts continue to be mixed. As just one example, a Western District of Michigan court earlier this month found a different loan servicer’s dialer to be an ATDS within the statutory meaning, agreeing with the Marks rationale. Parties and their counsel defending against TCPA claims will increase their chances of victory if they can present evidence — as the court stressed here — that call lists are “separately created and uploaded onto the software.”
Judge Grants MTD in FDCPA Case Over Use of Form Complaint
Using a standard template form in a lawsuit against an individual does not constitute a violation of the Fair Debt Collection Practices Act, a District Court judge in Nebraska has ruled, granting the defendant’s motion to dismiss. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: Reading about collection agencies and law firms defending FDCPA actions is not new. This case, however, is interesting and distinguished itself from others as the Plaintiff filed this action subsequent to a lawsuit filed by Messerli & Kramer, P.A. (MK) for its client CACH, LLC, against the Plaintiff for a debt it deemed owed. After the case against the Plaintiff was dismissed without prejudice by MK and its client, the Plaintiff filed this new action against MK. The Plaintiff claimed that MK violated FDCPA as the standard form compliant filed in the original suit was too vague and would require the hiring of a law firm to understand. MK’s complaint did not indicate whether the debt was agreed to orally or in writing, a copy of such agreement nor a precise specification of the original creditor.
The result of this subsequent action was good news for the industry. The Court ruled in favor a motion to dismiss filed by MK justly based on established case law that the failure to include the information the Plaintiff claimed was necessary did not amount to a cause of action under the FDCPA. The Court relied on a 2016 ruling in favor of Portfolio Recovery Assocs, LLC that held that the same lack of information in a collection letter did not serve as a basis for a claim. While it is good to hear that the hard work that a previous collection agency put in to establish case law is used to come to such a decision, it is the first part of the Court’s analysis in its decision that draws my attention.
The Court discussed that while it must protect the public against abusive actions as provided by the FDCPA, it should not envoke rulings that would lead to diminishing lawyers access to courts. It is rare when we in this industry can take note of a court recognizing the added costs and risk imposed on all collection firms, even the good actors. If even the most compliant collection firms had to consider the added expenses due to subsequent litigations such as this one, one can only assume that firms would be more hesitant to advocate on behalf of their client. Even if this part of the Courts analysis could not be used as the sole basis to rule in favor of the motion, to hear that the costs even the most compliant collection agency and firms have endured defending unjust claims under the FDCPA recognized outside of the industry is good news to hear at any time.
Judge Grants MSJ For Defense in FDCPA Suit Over Processing Fee, Who Owed Debt
A District Court judge in Missouri has granted summary judgment in favor of a defendant that was sued for allegedly violating the Fair Debt Collection Practices Act because it charged a processing fee for payments made via a debit or credit card and because the account was originally opened in the plaintiff’s ex-wife’s name. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: Allowing consumers to pay their debts with a credit card, ACH, or debt cards significantly increases the amount of people that pay their debts and offers a benefit to both the collector and creditor. Such a service, though, comes at a price in the form of the third-party payment processor fees (a.k.a., “convenience fees”). For business reasons, collectors usually do not charge their clients for those fees. For legal reasons, collectors do not pass on those fees to consumers because they feel they are only permitted to do so when a state law or contract between the consumer and creditor allows for that.
That is the position of the CFPB. Some courts have ruled, though, that as long as the collector is not profiting from the collection of the processing fee (i.e., doing no better than breaking even), collectors can pass on the processing fee so long as the consumer had other free methods to pay such as mailing in a check. For such an important issue, not a lot of case law exists, which makes the decision in Ketterman v. I.C. System, Inc. 4:18-cv-01136-CDP (E.D. Mo Aug. 12, 2019) potentially impactful.
Judge Perry ruled that as long as the convenience fee is paid by the consumer directly to the third-party payment processor without ever having landed in the hands of the collector, the fee is perfectly legal as long as the collector also gave other free payment options to the consumer. From a practical standpoint, collectors should look to third-party payment processors that, in the words of Judge Perry, “collect[] and retain[] the entirety of the processing fee.” Some companies have that ability, and some do not. Collectors should ask their payment processors about this option. As the owner of a collection and defense firm that pays (and absorbs) tens of thousands of dollars a year in convenience fees, I will certainly be doing this.
As exciting as this holding is, this is only a district court ruling with which CFPB regulators and other courts may disagree placing you in great jeopardy if you follow this practice (sorry of the buzz kill). Another question is that if I.C. System, Inc.’s method was legal, what about when the collector gets the fee but pays all of it to the third-party processor.
That was the situation in, Weast v. Rockport Fin., LLC, 115 F. Supp. 3d 1018, 1021 (E.D. Mo. 2015), a case cited by Judge Perry (and argued by yours truly). We lost at the motion to dismiss stage because there was a question of fact as to whether the collector retained any portion of the convenience fee. Although the case resolved prior to the filing of a motion for summary judgment, the court indicated in its motion to dismiss order there may be no liability if the collector turned over all of the money to the processor even if the consumer paid the fee first to the collector. That is a common scenario for many collectors, and Ketterman adds ammunition to the argument no violation occurs in that situation. All in all, while there are some questions that remain unanswered, Ketterman is a good decision for the good guys.
Judge Denies MTD Over ‘Will Not Sue’ Statement About Time-Barred Debt
A District Court judge in Illinois has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act because it said it “will not” sue an individual for a time-barred debt instead of saying it “can not” do so. More details here.
WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: This case reminds everyone to double check the out of statute language that you have programmed for states that do not have state-specific statutory language. Make sure that your language is clear that the creditor cannot sue. According to this Illinois District Court, the different between “will not” and “cannot” is a material difference–using “will not” implies to the consumer that the creditor “simply chose not to sue” when in fact the account is time barred and the creditor cannot sue. Interestingly the court alluded that it might not hold this language to be misleading as a matter of law (which a defendant could bring as a motion for summary judgement later in the case) it would need evidence from the Plaintiff concerning whether or not the Plaintiff was mislead by the “will not” versus “cannot.”
Another important issue in this case is whether phrases such as “discount offer,” “this offer may not be available after today,” “not obligated to renew,” and “make a payment today” are materially misleading in violation of the FDCPA by creating a false sense of urgency to pay a time barred debt. The Court did not address this question because it denied the motion to dismiss. It is imperative to think critically about the other language used on out of statute communications. We already know that using the term “settlement” on an out of statute account is a violation in many districts. Looks like any time sensitive offers will also result in a lawsuit.
The Defendant did ask for sanctions for unreasonably and vexatiously multiplying claims because Plaintiff included other allegations stemming from other statutes that she dismissed early on in the case. The court denied sanctions because it upheld the right of the plaintiff to bring the FDCPA claim.
States that have their own state statutory language include CA, CT, MA, NM, NY, TX, WV.
Appeals Court Affirms Lower Court’s Ruling in FCRA Case
The Third Circuit Court of Appeals has upheld a lower court’s summary judgment ruling in favor of a defendant that was accused of violating the Fair Credit Reporting Act by allegedly providing inaccurate information on the plaintiff’s credit reports. More details here.
WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: Credit reporting has gradually become a significant source of consumer litigation. Claims filed under the FCRA have trended upward since 2015 (prompting one litigious debtor scrub service to hypothesize that the FCRA may become the “new” TCPA). There is a lot of misinformation among consumers regarding credit reporting. Most collection agencies are familiar, for instance, with arguments such as “I’ve been making payments, so that should prevent my account from appearing on my credit report.”
This is an instance where an apparent misunderstanding led to a federal lawsuit. The plaintiffs claim, in essence, that accurate (albeit negative) credit information should be excluded from their credit report because of extenuating circumstances. Specifically, the credit accounts have been paid off or brought current, and the plaintiffs’ financial situation has improved. Consumers frequently seek to control the information contained in their credit histories. However, the purpose of a consumer credit report is to provide a full snapshot of a consumer’s credit worthiness. Picking and choosing which bits of information to include and exclude on an ad hoc basis does not support this goal. A credit reporting agency’s obligation is only to report correct information. Frankly, I am surprised this claim was pushed up through the court of appeals.
At some point in the future, this outcome may be different. Various legislative initiatives are underway to limit the impact of negative credit histories. For instance, the Medical Debt Relief Act would require CRAs to delete medical trade lines from consumer credit reports that have been paid in full.
Appeals Court Overturns Lower Court’s Summary Judgment Ruling in TCPA Case
The First Circuit Court of Appeals has waded into technical waters and determined that calls made to individuals who have smartphones that offer a hybrid of Voiceover Internet Protocol service and cellular service are subject to the Telephone Consumer Protection Act, and overturned a lower court’s summary judgment ruling in favor of the defendant. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: Most courts agree that the TCPA applies to a call placed to a telephone assigned to a cellular service, regardless of whether the called party was charged for the call. Most courts also agree that the TCPA does not apply to a call to a telephone assigned to a VOIP service, unless the called party was charged for the call. But what if the telephone is assigned to a “hybrid” service that uses either cellular technology or VOIP technology, depending on whether the telephone is connected to Wi-Fi when the call is received? Does the TCPA apply in that scenario? In Breda v. Cellco, the First Circuit held that it does. Citing the principle that consumer statutes must be interpreted broadly in favor of consumers, the First Circuit concluded that a “hybrid” cellular/VOIP service is meaningfully distinguishable from an “exclusive” VOIP service. Accordingly, while Breda illustrates the ever-expanding scope of the TCPA, the silver lining here is the implied confirmation from the First Circuit that an “exclusive” VOIP service is not subject to the requirements of the TCPA unless the called party was charged for incoming calls. Many times, this is a burden which the consumer can never meet, especially with today’s type of phone services and hybrid service plans. Also, the attorneys for the consumers generally do not like to take on cases involving VOIP or hybrid telephony services because there is a very narrow path in which they can potentially prevail under the TCPA. The effort outweighs the potential benefits.
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