Compliance Digest – Sept. 30

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.

$11M Settlement in TCPA Case Against Lexington Law Receives Preliminary Approval

An $11 million settlement has been preliminarily approved by a District Court judge in Florida related to a Telephone Consumer Protection Act case that was brought against John C. Heath Attorney At Law, PLLC, more commonly known as Lexington Law Firm. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: The Pena case against Lexington Law, involves an $11 million dollar settlement based on telemarketing text message and call campaigns to consumers, without prior express “written” consent. Calls made for marketing purposes have the added component of requiring express written consent. That consent has multiple layers of requirements that a consumer must agree to before an entity can send marketing calls and texts to one’s cell phone. 

It is important to note that the unopposed motion for preliminary approval of the settlement was filed nearly four months before the  11th Circuit’s recent decision in Salcedo v. Hanna, No. 17-14077, 2019 WL 4050424, at *4 (11th Cir. Aug. 28, 2019). The Pena case is bound by 11th Circuit law. In Salcedo, the 11th Circuit held that that receiving a single unsolicited text message does not involve the type of harm that federal courts are empowered to address; i.e., the recipient of the single text did not have Article III standing to bring a claim against the sender of the text. (think Spokeo decision). A text message, per Salcedo, does not involve the type of invasion of private affairs that wiretapping or eavesdropping into a phone conversation involve. If the parties had not settled the Pena case before the 11th Circuit issued its Salcedo decision, an argument could have been made that whether each class member suffered an Article III injury was an individualized inquiry that defeats class certification.   

It is important to note that one of the settlement classes was based on leads from lead generators. In relying on any source as the basis for consent, it is important to determine the origin of that consent and carefully assess the risks involved to avoid the very problem that occurred in this case. 


Judge Denies MTD in FDCPA Case Over Inclusion of Attorney Fees

A District Court judge in Pennsylvania has partially dismissed claims that a law firm representing a timeshare community in Pennsylvania violated the Fair Debt Collection Practices Act by filing a lawsuit against the plaintiffs in the improper venue, but denied a motion to dismiss over allegations that the defendant attempted to collect unincurred attorney’s fees unauthorized late fees. More details here.

WHAT THIS MEANS, FROM AMY JONKER OF THE JONKER LAW GROUP: This opinion denying a motion to dismiss is another cautionary tale to collection agencies and collection attorneys — when drafting collection letters, make sure the words you use to describe the money debtors owe matches what the contract permits as required by 1692f(1). Here, the collection letter stated that the debtors owed “association fees and late fees” but the association contract permitted collection only of the association fees plus interest (interest is different than late fees). Similarly, the collection letter included in the amount owed $1,000.00 in attorney’s fees that would be incurred if the matter was litigated. But the association contract only permitted collection of amounts actually “incurred”, not that would be incurred. It may seem like splitting hairs, but that’s the law we have (for the moment)!

Appeals Court Revives Finder’s Fee Case Against Collection Agency

The Court of Appeals for the Third Circuit has reversed a lower court’s ruling that a collection agency was not obligated to pay a “finder’s fee” to a networking company after winning a contract to work with the Department of Education. More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: I knew the day would come when I had to awkwardly articulate to my two young daughters that when two corporate entities love one another, they consummate their relationship. In Fed Cetera, LLC v. National Credit Systems Inc., the Third Circuit Court of Appeals had this conversation when it defined what it means to “consummate” an agreement. 

Net Gain entered into an agreement with National Credit Systems Inc. (“NCS”) to connect NCS with government contacts in hopes of obtaining a student debt collection contract. NCS would pay Net Gain a “finder’s fee” if NCS contracted with the government, and the contract was “consummated” during the term of NCS’s agreement with Net Gain. NCS then declined to pay a fee relating to a government contract that was executed during the term of the Net Gain agreement but was not performed until after that agreement expired. Net Gain later assigned its rights under the NCS agreement to plaintiff FC, which argued the contract with the government was consummated when executed. 

The Third Circuit held the government contract was consummated upon execution even if not performed. The agreement did not define “consummate,” and the court found the term ambiguous. It applied New Jersey state contract law, dissected alternative meanings, and looked at the circumstances of this particular arrangement to find the government contract with NCS was consummated when signed rather than performed. The court implied Net Gain’s job as a match maker was completed when NCS successfully contracted with the government. 

So, what’s the industry-wide lesson to learn from these facts? Always be as clear as possible in all of your contracts. All of this could have been avoided if the agreement said a finder’s fee was due when the government contract was “executed” or when it was “performed.” This linguistics lesson translates to communications with consumers as well. You do not get points for fancy or unusual language, just the opposite. Be as clear as possible at all times. The absence of clarity only breeds litigation, and that’s worse than talking to your kids about the definition of “consummate.”

CFPB To Keep Complaint Database Open to Public, But With Some Changes

The Consumer Financial Protection Bureau announced yesterday that it will continue to publish its database of consumer complaints, but announced that it will make some changes to how the data is presented, which appeared to keep both consumer advocates and participants in the credit and collection industry happy. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The CFPB’s Consumer Complaint Database (Database) has been the subject of much debate since the CFPB launched it publicly in 2012. Advocates have lauded the Database as an important tool for consumers, while industry called it a “financial services’ Yelp.”

During the Cordray administration, there was no doubt that the CFPB used the Database as a basis for the development of guidance, bulletins, rulemaking, and enforcement; especially in scrutinizing the debt collections industry. However, the industry had an 85% satisfaction rate of any complained-of industry; meaning that 85% of the complaints submitted to debt collection companies were resolved by the correct company, in the consumer’s favor, and without further action. Despite this high rate, the CFPB has consistently used the unverified data as evidence of systemic problems in the marketplace. CFPB has turned a blind eye to the fact that the debt collections industry by far responds quicker and more often to consumer complaints than any other industry. When Mick Mulvaney assumed the role of Director of the CFPB, he issued a Request for Information (RFI) on a variety of topics, including the Database. Mulvaney, at times, hinted that the Dodd-Frank Act did not authorize the publication of complaints. The RFI received over 26,000 comments.

Last week, Director Kraninger announced new enhancements to the Database that suggest a more balanced approach. In particular, the Database will more prominently display disclosures that make it clear that the complaints are not statistical samples of consumers’ experiences in the marketplace. Further, the Database will provide more information for consumers in order to help inform them of common financial questions before they submit a complaint to the CFPB and provide direct contact information of financial companies to get answers to their specific questions. Complaints will still be made public, but the CFPB states that it will make further improvements to ensure that the data is provided in context by incorporating product or service market share and company size.

The debt collections industry has been reminded all too often that it receives the most complaints. Industry, however, has also reminded the CFPB that the percentage of complaints received from the Database represents a minute fraction of the total amount of collection communications made in any given year. It is too soon to conclude, as some consumer advocates have suggested, whether these new enhancements are meant to water-down the Database. Complaints on average — especially debt collection complaints– have been trending downward.  Whether the CFPB will use the new and qualified data in different ways remains to be seen. Industry would be wise to continue to respond promptly and appropriately to all complaints received going forward. The CFPB has not abandoned the Database,  rather, provided it with the appropriate relevance.

Judge Grants MTD in FDCPA Case Over Different Language in Dispute Notice

A District Court judge in North Carolina has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by not quoting the statutory dispute notice language in a collection letter. More details here.

WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT OF NORTH AMERICA: Although based around very specific letter language, the Cavin case highlights a broader issue in the collection industry.  Since many agencies have installed manual calling devices and dialer cell phone scrubs have become more sophisticated, consumer attorneys appear to be switching their focus from TCPA litigation to letter language litigation in the class action arena. I appreciate the thoughtfulness Judge Tilley put into his ruling in this case, however, another judge in another jurisdiction may have gone a different direction. Herein lies the problem. Even with the best MAP attorney, it is nearly impossible to write a letter that someone, somewhere won’t potentially find confusing. Creative consumer attorneys, combined with currently conflicting case law, has created an uncertain and expensive environment for collection agencies. We have found ourselves settling one lawsuit, making changes to a letter based on that suit, only to find ourselves sued again on the “better” language. This appears to be an area where the CFPB can do some good. Although I don’t think their proposed initial demand letter is ready for sending as-is, I do believe a universal letter with a safe harbor attached to the use of it will help bring some much needed stability to this issue.”

Judge Grants MTD Over Use of ‘Client’ in Letter

A District Court judge in New Jersey has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by referring to the original creditor as a “client” in a collection letter. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: In deciding Rodriguez v Certified Credit & Collection Bureau, 2019 U.S. Dist. LEXIS 153661, the KISS principle takes center stage. In an introductory letter there are several key points that need to be made. Who you represent, the pedigree of the debt and the amount of the debt.

CCCB sent a letter where it said client, when it could have (should have) said creditor. However, Rodriguez was referred to as “Patient: Delia Rodriguez” in the letter and the client was identified as “Saint Clare’s Behavioral.” There were no other names contained within the letter so Judge McNulty did not buy the argument that the debtor would be confused. Plaintiff tried to argue and rely on Gross v. Lyons Doughty & Veldhuis, P.C., 2019 U.S. App. LEXIS 20445, 2019 WL 3010288 (3d Cir. July 10, 2019) however in Gross the letter stated that LDV, the debt collector, “represents Capital One Bank (USA), N.A., assignee of HSBC BANK NEVADA N.A. RCS DIRECT MARKETING/ORCHARD BANK in connection with [Gross’s] account,” and stated that LDV was a debt collector. Too many names, not enough explanation said the 3rd Circuit.

The moral here brings us back to KISS. Why not just say: our client is ABC. Then explain as simply as possible the client’s relationship to the debt. If it’s purchased debt explain that your client, ABC purchased the account from XYZ, the original creditor and ABC now seeks to collect. If, as in Rodriguez, advise: Our client, Saint Clare’s Behavioral has retained us to collect your outstanding account with them.

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

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