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 Stays FDCPA Case Against Law Firm Pending SCOTUS Ruling on CFPB
A District Court judge in New York has stayed a case against a collection law firm that was being sued by the Consumer Financial Protection Bureau for allegedly violating the Fair Debt Collection Practices Act by misrepresenting that attorneys were meaningfully involved in lawsuits. More details here.
WHAT THIS MEANS, FROM PORTER HEATH MORGAN OF MALONE FROST & MARTIN: This is a good decision and ruling for the industry. Despite the declarations from interim CFPB Director Mick Mulvaney that “regulation by enforcement is dead”, the CFPB’s case against Forster & Garbus is exactly that. In fact, the arguments made by the CFPB in its cases against Forster and Garbus and FCO Holdings both appear to adopt former director Richard Cordray’s philosophy of “pushing the envelope.”
These philosophies continue to pose a great danger to businesses trying to comply with the law, and it was hoped that our industry had reached an understanding with the CFPB about that with the proposed rules. Both our industry and consumers thrive when there is regulatory clarity. Theories like regulation by enforcement and pushing the envelope don’t help provide clarity and can hurt the industry and consumers.
But if the CFPB is going to continue to pursue regulation by enforcement and push the envelope in its arguments to the Court, then rulings like this out of New York serve as an important role to put a check and balance on the CFPB’s enforcement ability. And the CFPB has to provide the businesses is takes regulatory action against the same ability to “push the envelope” in its defenses.
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Judge Denies MTD in FDCPA Case Over Expedited Fee Charge
A District Court judge in Oregon has rejected a Magistrate Court’s recommendation to dismiss a lawsuit filed against a law firm accusing it of violating the Fair Debt Collection Practices Act by charging an expedited service fee when it filed Statements of Costs with the court after obtaining default judgments. More details here.
WHAT THIS MEANS, FROM JUNE COLEMAN OF CARLSON & MESSER: This case highlights the issues when a state court has issued a judgment and the debtor files an FDCPA lawsuit alleging that part or all of the judgment is improper. In Mueller v. Gordon Aylworth & Pami, the attorneys sought and obtained a default judgment for the amount owed on the debt plus “costs and disbursements incurred.” In accordance with Washington law, after the default judgment, the law firm filed Statements of Costs for cases, indicating costs that should be added to the default judgment, in keeping with the judgment which also awarded costs that were incurred. The Statements of Costs sought a $45 expedited service fee, and included a statement that the expedited service was necessary and that the $45 fee was actually incurred. However, the default judgment debtors were not served with the Statements of Costs, and thus the expedited service fee was not incurred (and Plaintiffs argue was not necessary). Defendant argued that the District Court addressing the alleged FDCPA violation was barred by the Rooker-Feldman doctrine to re-litigate the costs issue. The Rooker-Feldman doctrine bars “cases brought by state court losers complaining of injuries caused by state court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” The Mueller Court explained that the U.S. Supreme Court has emphasized the narrowness of the Rooker-Feldman doctrine. The Ninth Circuit has further explained that the Rooker-Feldman doctrine not only requires that the plaintiff’s theory of the case will result in a de facto appeal, but also that the plaintiff alleges a legal error by the state court.
Here, as in many cases involving default judgments, the Court was not inclined to apply the Rooker-Feldman doctrine in a case where the judgment was not determined after a full hearing of the facts by both parties. In the Mueller case, the District Court did not find that the plaintiffs were asking that the Court reconsider the state court default judgment, but rather that the Statement of Costs were false when they sought “actual costs” that were not actually incurred, and also not necessary. In other words, the plaintiffs were not arguing that the state court had committed an error. The Court also found that the allegations in the state court complaints that the creditor was also seeking actual costs were misleading when they sought only actual costs incurred, and that this liability theory was also not barred by the Rooker-Feldman doctrine, though I think this is a closer call, in my opinion. Nonetheless, the Mueller plaintiffs did not have to allege that the state court wrongly granted default judgments with necessary and actual costs – the plaintiffs have no issue with the judgment and its language. The issue is with the Statements of Costs, which have not been adjudicated by any court. And thus, not only is there no de facto appeal and reconsideration of a state court judgment, but the false Statements of Costs are not inextricably intertwined with the state court judgments. Nor is there any issue preclusion that would bar re-litigating the issue of whether the costs were actually incurred.
The Mueller Court also addressed whether extrinsic fraud would also bar the application of the Rooker-Feldman doctrine. When the alleged wrongful conduct involves default judgments in state courts, courts are reluctant to dismiss an FDCPA case based on the Rooker-Feldman doctrine – because courts inherently want cases decided after all evidence from both sides are considered. To allow an FDCPA case to be dismissed based on a state court default judgment might appear to be avoiding a full and complete analysis of the facts a second time. Thus, in the Mueller case, the Court was not receptive to the law firm’s argument that the false Statements of Costs did not constitute extrinsic fraud because the inaccurate information did not prevent plaintiffs from opposing the costs, the failure to appear prevented the plaintiffs from opposing the costs.
The Rooker-Feldman doctrine is a powerful defense, as is issue preclusion. However, courts are reluctant to use either to bar a case when the state court judgment was by default. Additionally, courts addressing FDCPA claims are careful to examine the conduct at issue to see if the case will necessitate re-litigating a state court judgment. For the most part, the conduct at issue in the Mueller case occurred after the state court judgment. Therefore, the Rooker-Feldman doctrine was not a successful and neither was the issue preclusion argument.
Debt Buying Ponzi Scheme Promoter Sentenced to 22 Years in Prison
A Maryland man who pleaded guilty to operating a debt buying Ponzi scheme that took $396 million from investors has been sentenced to 22 years in prison and must make full restitution to all of his victims, which is expected to be at least $189 million. More details here.
WHAT THIS MEANS, FROM AMY JONKER OF THE JONKER LAW GROUP: Posing as a debt collection entrepreneur, a man lured investors into giving him hundreds of millions of dollars to buy debt collection portfolios that he said would be collected or resold. In reality, he and his associates created fake companies, fake portfolio overviews, fake sales agreements, fake bank statements, fake collection reports, and real names and forged signatures to dupe investors to give them money. They used that money to buy real estate, gamble, and live extravagantly. The swindlers are facing 22 years in prison and full restitution of close to $200 million dollars.
Article Declares Medical Collectors Get to Decide If Unpaid Debts Should Lead to Jail Time
Debt collectors, especially those who collect on unpaid medical debts, get to decide whether an individual goes to jail or not, according to a new article that was published yesterday by ProPublica, which looked at how “collection attorneys have turned this courtroom into a government-sanctioned shakedown of the uninsured and underinsured, where the leverage is the debtors’ liberty.” More details here.
WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: ProPublica is a consumer advocacy organization that has recently targeted the collections industry – specifically, medical debt collections. This year alone, ProPublica has issued “exposés” on hospital systems in varied places such as Memphis (Tennessee), Fredericksburg (Virginia), Carlsbad (New Mexico), Charlottesville (Virginia), Tulsa (Oklahoma) and St. Joseph (Missouri). Referring to themselves as “Journalism in the Public Interest,” (via website), ProPublica sees its mission as exposing abuses of power through investigative journalism.
This particular article highlights questionable collections practices in a small town in Kansas, where consumers are (purportedly) subject to jail time for failure to respond to a collections lawsuit. To avoid jail, the patient is required to post a bond, which is then turned over to the collections attorney and used to pay down the existing debt. I think the legality of that practice is suspect at best. At the same time, I have never heard of such an arrangement with a court before and do not believe it to be common. Nonetheless, scandalous news reports like this tend to paint with a broad brush and categorize all medical collections as resulting in consumer harm.
ProPublica is not alone in this regard. For instance, the U.S. Public Interest Research Group (U.S. PIRG) issued a whitepaper in 2017 entitled “Medical Debt Malpractice – Consumer Complaints About Medical Debt Collectors, and How the CFPB Can Help.” This report made waves within legislative and regulatory circles, and called out by name those entities it deemed “bad actors” in the industry.
The thrust of consumer advocacy can spurn action. ProPublica issued a report earlier this summer about Methodist/Le Bonheur Hospital in Memphis and its perceived eagerness to file collections lawsuits against patients – including its own employees. After the report, Methodist/Le Bonheur suspended its collection litigation strategy and announced it would no longer sue its lowest-income patients. The hospital system in Missouri? After ProPublica’s report, Sen. Chuck Grassley opened an investigation with the IRS into the hospital’s non-profit status.
Clearly, the attention being given to medical debt by pro-consumer groups should be taken seriously. News like this becomes the subject of conversation by regulators and legislators alike, leading to possible enforcement actions, investigations, and new rulemaking.
Judge Partially Denies MSJ in FDCPA, TCPA Case
Placing 77 calls over a 73-day period is not enough to be considered a violation of Section 1692f of the Fair Debt Collection Practices Act, but is enough to be considered a violation of Section 1692d(5) of the FDCPA, a District Court judge in California has ruled in only partially denying a defendant’s motion for summary judgment. More details here.
WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: Ammons is an example of what some like to call “kitchen sink” pleading. “Kitchen sink” pleading is the practice of including redundant or superfluous causes of action in a complaint with the intention of scaring the opposition into submission. As one judge put it, “kitchen sink” pleadings “inspire no confidence; they suggest that the pleader is not sure what his cause of action is but hopes that if he includes enough allegations the finished product will probably contain at least one cause of action somewhere within it.” Kirgan v. Parks, 478 A.2d 713, 720 (1984). In reading Ammons, it appears that the Section 1692d(5) claim (and corresponding Rosenthal Act claim) is the only one that truly fit with the alleged facts. These allegations contend the receipt of 77 calls over a 73-day period. Five of those were in the same day and some made after an oral cease request. This type of conduct fits squarely under Section d(5) which prohibits “causing the phone to ring or engaging any person in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass any person at the called number.” Yet, the plaintiff pled a general Section d and Section f claim based on the same facts. Thus, it is no surprise that the court granted judgment to the collector under Section d and f, even if it was denied as to Section d(5).
Collection Attorney Facing FDCPA Suit Over Alleged Threat to Report Debt in Letter
A class-action lawsuit has been filed in New Jersey alleging that a collection attorney violated the Fair Debt Collection Practices Act by threatening to report an individual’s unpaid debt to a credit bureau when it had no plans to do so. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: In Pazymino v. Harrison, Plaintiff filed a class action lawsuit against a collection attorney who sent Plaintiff (and allegedly the class members) a collection letter stating he would report the outstanding debt to a credit reporting agency if the account was not resolved in 35 days. The class action complaint was only filed 10 days ago in the U.S. District Court of New Jersey, so we have do not know the position of Defendant or the extent to which any of the factual allegations are correct.
We do not yet know enough facts to draw specific lessons from this case. It does, however, remind us that letter violations are prime targets for class action litigation if a large number of consumers receive the same letter that contained the same alleged violation. Such a threat should incentivize collection agencies to have their collection letters reviewed for compliance by either in-house or outside counsel on a regular basis to identify potential letter violations.
This case also reinforces the importance of not referencing credit reporting in your letters (or even on the phone) if you do not intend to credit report. If you do intend to credit report, be sure to have consistent procedures whereby reporting happens in the same way with all consumers and is consistent with what you state in your letters. These procedures are also very important in the event your company unintentionally fails to credit report a debt because of a clerical error. The bona fide error defense will only shield you from liability if you have procedures (preferably written) in place that are actually being implemented.
WDNY Judge Grants MTD in FDCPA Case Over Collection Lawsuit Issues
A District Court judge in New York has granted a defendant’s motion to dismiss after it was sued for allegedly violated the Fair Debt Collection Practices Act by filing a lawsuit of its own against an individual with an unpaid debt even though it was not able to prove it had standing to do so. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: In the recent case of Mora v LVNV Funding, LLC, 2019 U.S. Dist. LEXIS 174684 (W.D.N.Y. 2019) while the various decisions made by the Court were unsurprising, one issue however lead me to consider another scenario and suggest caution.
In Mora, at the summary judgment stage “LVNV was unable to prove its standing through admissible evidence, and the state court granted Mora’s motion for summary judgment and dismissed LVNV’s collection complaint.” Id at *2. Based on this failure Mora alleged that this constituted misrepresentation, specifically as to ownership of the debt. The court didn’t agree. The Court opined that an FDCPA plaintiff needs to show that the collection action was filed despite the collector knowing it could never prove its case. “Here, Mora does not allege that LVNV filed its collection complaint against her in bad faith or that it knew or should have known that it could never prove its case. Accordingly, the Court finds that Mora fails to state a claim.” Id. at * 7-8.
So where’s the caution? What happens if an attorney goes to Court missing some or all of the necessary evidence (proof of ownership, statements showing activity etc) to prove the debt, the connection to the alleged debtor and the plaintiff’s ownership of the account. The attorney then attempts to settle the case at the Courthouse with the debtor knowing that if the case isn’t settled the attorney can’t prosecute the case due to a lack of evidence? Is there a claim for false representation there?
Battle Between Billionaire, Collection Agency Intensifies and Moves From Media to State Legislature
The battle raging in Idaho between Frank VanderSloot, a billionaire, and a pair of lawyers who own a collection agency, is intensifying, as VanderSloot also begins a lobbying campaign to enact new laws related to the collection of medical debts. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: VanderSloot’s lobbying efforts aim to impose restrictions on medical debt collection that track those being implemented in other states.
According to the proposed Idaho legislation, healthcare providers would be required to send out bills detailing the services and facilities would have to send a consolidated notice. These notices would be required within a 30-day window and would be required to provide contact information for the billing agent.
Washington state implemented laws governing interest accumulation, collection, notice and reporting of medical debt earlier this year. Meanwhile, Oregon became the first state to set minimum amounts that nonprofit hospital systems would be required to spend on patients who cannot afford medically necessary treatment.
While VanderSloot’s legislative aims are not unique, the fact that he has personally taken such an active stance against the industry is notable. The how’s, why’s, and when’s of collection of medical debts continue to be a hot button issue. Staying on top of state by state legislative changes and updates will be vitally important.
Minn. Lawmakers Pledge To Enact Nation’s Toughest Anti-Robocall Law
A trio of state lawmakers in Minnesota yesterday announced plans to legislate a crackdown on illegal robocalls, which would enhance consumer protections, stiffen penalties for those found to be placing robocalls, and require telecom companies to offer call-blocking technology for free to their customers. More details here.
WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: Regulation of so-called “robocalls” and “spoofing” has attracted much attention over the last several years from Congress and the Federal Communications Commission. Increasingly, state legislators and attorneys general are stepping into the fray. Most recently, several state representatives in Minnesota have announced plans to introduce a bill designed to be the nation’s toughest “anti-robocall” law. Although a draft of the legislation has not been publicly circulated, the stated intent is to require phone companies to affirmatively block “spoofed” calls (i.e., calls originating from another country but appearing to be from a local area code), and to provide new regulatory tools and enhanced penalties. It remains to be seen what application this law would have for collectors (in contrast to overseas scammers who are plainly the target), but certainly the credit and collection industry will need to pay close attention to such bills introduced at the state level, which may create unintended liabilities for legitimate calls arising from existing business relationships.
Judge Grants MSJ in FDCPA Case Over ‘Current Balance’ in Collection Letter
A District Court judge in New York has granted a defendant’s motion for summary judgment in a “current balance” letter case in which the plaintiffs said issues raised in a separate consent order between the defendant and the Consumer Financial Protection Bureau should raise concerns about the “credibility and veracity” of claims made by the defendant and an affidavit submitted by the defendant’s operations manager. More details here.
WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: In an excellent decision, common sense prevailed. The district court concluded that using the word “current” is not enough to confuse a least sophisticated consumer. However, the take-away is to look for ways to avoid this type of frivolous complaint altogether. One way is to say “amount of the debt”. 15 U.S.C. 1692g(a) requires disclosure of the “amount of the debt” to the “creditor to whom the debt is owed.” Those two phrases are sometimes given a glossy finish like “current balance” or “client”, with mixed results from the courts. Thankfully, here, the judge wasn’t buying what the consumer was selling.
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