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 MTD in TCPA Case Over Use of ATDS
A District Court judge in Arizona has denied a defendant’s motion to dismiss after it was accused of violating the Telephone Consumer Protection Act by making collection calls to the plaintiff using an automated telephone dialing system. More details here.
WHAT THIS MEANS, FROM ROZANNE ANDERSEN OF ONTARIO SYSTEMS: This Court’s decision to deny the defendant’s motion to dismiss showcases how the application of the Rules of Civil Procedure and judicial bias can lead to an untenable result. In the Ninth Circuit, Courts have acknowledged “the difficulty a plaintiff faces in knowing the type of calling system used without the benefit of discovery” and have found that courts can infer the use of an ATDS from the details of the call. Hickey v. Voxernet LLC, 887 F. Supp. 2d 1125, 1129–30 (W.D. Wash. 2012) (quoting Knutson v. Reply!, Inc., No. 10-CV-1267-BEN, 2011 WL 1447756, at *1 (S.D. Cal. Apr. 13, 2011)). Yet in my opinion, the ability for a court to draw inferences should be grounded in more than a thinly veiled argument that the platform was an ATDS because the plaintiff believed it to be so and should never be the basis for what is essentially creative use of a legal argument to support a fishing expedition. What the defendant either failed to articulate or the Court failed to appreciate, is that depending upon the carrier, the connection or even the proximity of a cell tower, manual contact systems can also cause a consumer to experience a notable pause before being connected with a live representative. Therefore, the mere existence of a pause should not be deemed evidence the defendant used an ATDS to contact the consumer.
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NDIL Judge Denies MTD in FDCPA SOL Case
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 would not sue the plaintiff to collect a debt for which the statute of limitations had expired instead of saying it could not sue. More details here.
WHAT THIS MEANS, FROM MONICA LITTMAN OF FINEMAN KREKSTEIN & HARRIS: A second District Court judge in Illinois recently 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 “cannot” do so. More details here.
This is the second case to come out of the Northern District of Illinois in the last month dealing with the distinction between stating the creditor “will not” or “cannot” sue on an account. This judge agreed with the recent decision in Barnett v. Midland Credit Management holding that the two phrases can have different meanings. Both judges relied on the Seventh Circuit’s decision in Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679 (7th Cir. 2017). The judge in Rueda stated that using the phrase “will not” might still confuse the unsophisticated consumer as to whether the creditor was barred from suing or decided to not sue and just “go easy” on the consumer. It is always important to review your letter templates to make sure your language is clear that a creditor cannot sue unless there is state-required language.
Judge Denies MTD in TCPA Case, Saying Outbound Message Can Not Become Inbound Call
A District Court judge in Ohio has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Telephone Consumer Protection Act, denying the defendant’s argument that an outbound call can be turned into an inbound call and thus not subject to the TCPA. More details here.
WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: While the defendant utilized a creative argument, the court’s decision is unsurprising. Here, defendant argued that the called party turned the call into an inbound call by virtue of “pressing one” when prompted by the caller. The court noted that this fact did not change the initial characterization of the call as an outbound call. Further, from a policy perspective, the court was unwilling to create a vast exemption for companies to avoid complying with the TCPA.
CFPB Fines Collector $236k For Violating FDCPA
The Consumer Financial Protection Bureau yesterday announced a settlement with a debt collector regarding alleged violations of the Fair Debt Collection Practices Act, which will require the collector to pay $236,800 in fines and restitution. More details here.
WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Tucked away in the Consent Order (para. 70) is a little gem – a “sunset” clause. The clause terminates the Consent Order, in this case, in five years. Regulators generally disfavor these clauses, especially the FTC who likes to require compliance reporting for up to 20 years! No one likes these orders hanging over their heads so it’s important to know that the FTC is permitting these clauses again. Ask for one if you’re in its crosshairs.
Appeals Court Rules Receipt of One Text Message Not Enough to Confer Standing To Allege TCPA Violation
The Court of Appeals for the Eleventh Circuit has ruled that the receipt of one text message is not enough of a violation of the Telephone Consumer Protection Act to give someone standing to file a lawsuit under Article III of the Constitution, potentially throwing a wrench into the arguments made by plaintiffs in virtually every TCPA case. More details here.
WHAT THIS MEANS, FROM LAUREN VALENZUELA OF PERFORMANT: For constitutional law geeks, this case is a gem! The Court conducted a straightforward and thorough analysis of Article III standing, while accounting for the modern realities of how we use cell phones. Cell phones are portable – we take them everywhere these days! In comparison to landlines, cell phones give people more control over the calls and messages received. For example, we can easily silence our cell phones, we can block numbers from our devices, and we can see the number that is calling us. The Court flatly stated “a single unwelcome text message will not always involve an intrusion into the privacy of the home in the same way that a voice call to a residential line necessarily does . . . and by nature of their portability and their ability to be silenced, cell phone calls may involve less of an intrusion than calls to a home phone.” The Court didn’t shy away from confronting its sister circuit, the Ninth Circuit’s, opposite position – in fact, it addressed it head on. Whereas the Ninth Circuit concluded that Congress identified unsolicited contact as concrete harm (thereby covering text messaging), the Court disagreed “with this broad overgeneralization,” opting to instead focus specifically on text messaging. The Court recognized that the TCPA is “completely silent” when it comes to unsolicited text messages. To be fair, text messages did not exist in 1991 when the TCPA was enacted; however, the Court pointed out that Congress has amended the TCPA many times since 1991 “without adding text messaging to the categories of restricted telemarketing.” Accordingly, it found that “Congressional silence is a poor basis for extending federal jurisdiction to new types of harm.” Essentially, the Court returned to the basics. In order to respect the Constitution’s separation of powers, “we must assure ourselves that our exercise of jurisdiction falls within the Constitution’s grant of judicial power.” And here, the facts of the case simply couldn’t cut it.
Judge Grants MSJ For Defense in FDCPA Case Over Attorney Representation
A District Court judge in Indiana has granted a defendant’s motion for summary judgment after it was sued for allegedly violating the Fair Debt Collection Practices Act because the plaintiff sent the original creditor a notice that she was represented by an attorney, but that information was not conveyed when the account was sold and subsequently collected on. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN SANDERS: This decision from the Southern District of Indiana is a positive development for debt buyers and collectors defending FDCPA lawsuits premised on directly communicating with a consumer whose attorney previously notified the original creditor that she was represented by counsel. This practice of consumer attorneys sending notice of attorney representation letters directly to original creditors, and then suing the debt buyer on the basis that the knowledge of the original creditor should be imputed to the debt purchaser, is particularly prevalent in Illinois and Indiana. The court also noted that, while this argument was not raised by the debt buyer, it could have won the case by arguing it does not qualify as a debt collector based on the Supreme Court’s 2017 decision in Henson v. Santander Consumer USA Inc. Hopefully this decision will provide ammunition for others facing these claims to fight them, and the tide will turn.
The background is familiar – after plaintiff defaulted on a loan, her attorney sent a letter to the original creditor stating she refused to pay the debt and all future communications must go to her counsel. The account was then purchased, but the debt buyer did not receive the letter from plaintiff’s counsel or any other information indicting Plaintiff had counsel or refused to pay the debt. After the debt buyer sent a letter attempting to collect the debt, plaintiff’s counsel responded by stating she refuses to pay and is represented by counsel. Although no further collection attempts occurred, plaintiff filed suit alleging violations of 1692c(a)(2) and 1692c(c) because she had notified the original credit in writing that she refused to pay and was represented by counsel.
The Court granted the debt buyer’s motion for summary judgment because, while plaintiff informed the original creditor in writing that she was represented by an attorney, that information was not conveyed by the creditor to the debt buyer when the account was sold and subsequently collected on. The Court rejected the plaintiff’s contentions that a debt buyer acquires all the rights and liabilities associated with a debt by determining that “[k]nowledge… is neither a right nor a liability; it is ‘a state of mind.’” The Court explained, “[a] debt purchaser does not acquire the seller’s knowledge-or any other state of mind- any more than a homebuyer acquires the seller’s neighborly grudges or fond memories of last year’s block party.” And the Court relied heavily on the Seventh Circuits decision in Randolph v. IMBS, Inc., 368 F.3d 726, 729 (7th Cir. 2004), which held that courts do not impute to debt collectors the information in creditors’ files because “the [FDCPA] asks what the debt collector knows, not what the creditor knows.”
Collector Did Not Violate FDCPA By Charging Additional Fees Allowed Under Agreement With Creditor, Appeals Court Rules
The Court of Appeals for the Sixth Circuit has upheld a lower court’s summary judgment ruling in favor of a defendant that was sued for allegedly violating the Fair Debt Collection Practices Act because it charged additional collection fees on top of a delinquent debt, even though those costs were expressly authorized in the agreement between the creditor and the defendant. More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: 15 U.S.C. § 1692f(1) prohibits the collection of any amount not expressly authorized by the agreement creating the debt or permitted by law. The Sixth Circuit held that collection fees, including $270 for an “FDCPA Compliance Assurance Package/Pre-Lien Review Process,” charged to the consumers represented the creditor’s actual costs because the creditor was contractually obligated to pay those fees. And because the consumers agreed to pay the creditor’s “costs” in their contract with the creditor, those collection fees were expressly authorized by the agreement creating the debt. However, the court noted that the result might have been different had the consumers challenged the amount of the fees, which caused a $220 debt to grow to over $1,000 over a few months, or had the consumers been able to provide evidence that the creditor was not actually obligated to pay the collector’s fees.
New Mexico Expands Online Dispute Resolution Service to Curb Debt Collection Lawsuits
A pilot program aimed at resolving debt collection lawsuits without the parties having to go to court is being expanded in New Mexico. The Online Dispute Resolution service, as of Sept. 1, is not available to all magistrate and district courts in the state. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: New Mexico’s Online Dispute Resolution (ODR) is the first of its kind in the nation. Not only is a good idea whose time has come but it looks to break out of the mold that is our archaic and antiquated state court system; a system which has been slow to adopt technology as well as address the needs of the public. For the past decade, consumer advocates and the press have described the court system as “overburdened” especially when it comes to the volume of debt collection cases filed. While some courts have focused on setting up special courts and enhancing technology in order to process the volume, many have forgotten about the parties involved. As the Court’s website explains, “[ODR] is a chance to end a legal dispute in a way that minimizes time spent in court and saves money. It offers a safe, private, online space to negotiate a satisfactory resolution with the other party”. [Emphasis added]. The structure of the ODR was taken for the most part from a study and report done from the Pew Charitable Trusts, Online Disputes Resolutions Offers a New Way to Access Local Courts, (Jan 2019), https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2019/01/online-dispute-resolution-offers-a-new-way-to-access-local-courts.
A favorite talking point among consumer advocates is that debt collection litigation results in too many default judgments. However the fact remains that despite receiving an official court notice requiring a consumer to appear in court, the majority of consumers fail to do so. Advocates have continued to argue that this because consumers are not properly served. That myth has been dispelled over the years. Collection attorneys who appear in court every day and speak to the consumers who do in fact appear will tell you otherwise. Many consumers simply can’t take time off from work or can afford the transportation or parking at the courthouse. The CFPB’s 2017 Report, Consumer Experiences with Debt Collection (the Report) found that of the 15% of their survey sample (319 consumers) who said they were sued by a creditor or debt collector in 2016, only 26% of those consumers (82 consumers) showed up for court. Interestingly, the CFPB’s survey that supported the conclusions in the Report, included the following question:
32b. People may want to attend a court hearing but then are unable to or do not. Which one of the following best describes the most important reason you did not attend the hearing:
- I owed the debt or had no defense;
- I did not owe the debt but thought it would not matter when I appeared;
- I did not know a lawsuit had been filed;
- I did not know when or where the hearing was held;
- I did not have an attorney;
- It was too difficult or expensive to attend;
- Other; or
- The claim was settled or dropped.
The CFPB never published the results to this question and never identified these results in the Report. Clearly this information would have been useful.
New Mexico’s ODR, although small in scope, recognizes that effective communication can resolve disputes quicker while empowering consumers with greater engagement in the process. The majority of the U.S. population communicates electronically no matter what the industry or the purpose; our state court system should be no different. Let’s hope other courts are watching.
Judge Grants MSJ For Defense Over Cease Contact Request Sent to Agency Affiliate
A District Court judge in Illinois has granted a defendant’s motion for summary judgment after it was sued for violating the Fair Debt Collection Practices Act by continuing to contact a plaintiff after the plaintiff’s attorney had sent an online message to stop doing so, because the message was sent to an affiliate of the collection agency and not the agency itself. More details here.
WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: This decision makes sense. The debtor’s attorney apparently made a mistake and sent the letter to the wrong company. Mistakes happen, right? Why is it that debtors try (and often succeed!) to profit from their mistakes, but debt collectors have to pay big money for similar mistakes (like mailing something to the wrong person)? Seems like viewpoint discrimination to me. One takeaway is to make sure that letters/websites/emails clearly state the address for debtors to use when sending correspondence. Does your office have an inbound fax number? How about a “contact us!” form submission on a website? Debtors will use any channel they can find to send disputes and requests. We should funnel (and even limit) the channels to something reasonable.
Appeals Court Overturns its Own Precedent in Tossing Out $5 Million Fine in FTC Case
The Seventh Circuit Court of Appeals has overturned a ruling from a lower court that fined the owner of a credit monitoring service $5 million for engaging in deceptive acts after it was sued by the Federal Trade Commission, in what is considered to be a stunning rebuke of a federal agency’s authority. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Depending on what “arrow” it pulls from its “quiver,” the FTC might miss its intended target. In this case, the 7th Circuit concluded that the FTC use of a particular section in its enforcement action, while providing for an injunction, would not support an award of restitution. Accordingly the 7th Circuit reversed in part and took away a $5M+ restitution award against a “credit monitoring” entity. The particular statute relied on by the FTC – the Restore Online Shopper Confidence Act (ROSCA) – and particularly its Section 13(b), limits relief to restraining orders and injunctions. The upshot? If faced with an FTC enforcement action, be sure to check the statute/regulation being used. Remedies might well be limited.
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