Compliance Digest – November 18

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 Overturns Dismissal of FDCPA Suit Involving 1099C Disclosure

The Court of Appeals for the Seventh Circuit has overturned a lower court’s dismissal of a lawsuit in which a defendant was accused of violating the Fair Debt Collection Practices Act because it included a disclosure about the creditor possibly filing a debt cancellation notice with the Internal Revenue Service, even though the amount of principal being forgiven was less than the reporting threshold. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: While at first blush this seems like the Seventh Circuit may have reversed itself on prior precedent, the Heredia case deserves a closer reading. The Court was careful to confirm that a statement that a settlement “may have tax consequences” on its own does not violate the FDCPA in accordance with Dunbar v. Kohn Law Firm, S.C., 896 F.3d 762 (7th Cir. 2018). There was a material difference in the language used by the collection agency in this case – the specific refence to the 1099C form. The collection letter stated that “Settling for less than the balance owed may have tax consequences” but then it added that “and Discovery may file a 1099C form.” Heredia, 2019 U.S. App. LEXIS 33444, at *7. By stating that the creditor may file a 1099C, the Court felt that the collection agency had actual made a materially false statement since the amount of money being forgiven was less than $600 and thus Discover would know that it would not send a 1099C form: “it is impermissible for a creditor to make a ‘may’ statement about something that is illegal or impossible.” Id., at *8. As is generally the case with collection letters, less is more! By sticking to a more general statement without referencing the specific creditor or what actions the creditor may take, the agency may have dodged this case.


Bill Introduced in Congress to Amend FDCPA’s Definition of Debt Collector

A bill has been introduced in Congress that would seek to amend the definition of debt collector under the Fair Debt Collection Practices Act. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: Obviously, if enacted into law, Rep. Lacy Clay’s bill seeking to redefine a “debt collector” within the meaning of the FDCPA would result in a sea change with respec to who is subject to that statute. For one, it would seem to encompass creditors collecting any secured debts, even in their own names, as being directly subject to the FDCPA (think  mortgages, automobiles, pawn and title loans, etc.). Additionally, secured interests can arise with by contract by operation of law (e.g., mechanics liens) so the definition could be applied even more broadly beyond what we traditionally think of as secured credit. So this would be significant. But realistically, I doubt this would make it through the current Congress and is likely part of election strategies and messaging. However, it may signal potentially future efforts and campaigns by various members of the Democratic party to push for further changes  in the collections space that may not be addressed as those participants want in the current CFPB rulemaking. We just really cannot know how earnest (or effective) such efforts might likely will at least mid-November 2020.

Judge Grants MSJ, Denies Class Certification in FDCPA Case Over Letter Referencing IRS Cancellation

A District Court judge in Wisconsin has denied class certification and granted summary judgment in favor of a defendant that was accused of violating the Fair Debt Collection Practices Act by including a reference to the requirement that the Internal Revenue Service may have to be notified of a debt cancellation in a collection letter. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN SANDERS: The Brunett decision implicates the tricky nature of including any mention of a Form 1099-C in letters to consumers. While there is no obligation for a debt collector to include this language, many financial institutions require collection agencies to include it in some form or another. This opinion, while ultimately granting summary judgment in favor of the debt collector and denying class certification, reiterates that a statement on its face can accurately reflect the law surrounding a form 1099-C but still be misleading it if implies an outcome that could not legally come to pass.

Here, the court stated that if the amount of plaintiff’s debt had been less than $600, the notice would have been misleading on its face. But since plaintiff’s debt exceeded $600, the court held that the letter was only plausibly misleading and that she could not represent putative class members whose total debt was less than $600 since her claims were not typical of them. Despite acknowledging that the unsophisticated consumer might not know whether the term “discharge” applies to the entire amount of a resolved debt or only the portion waived by the creditor, the court held her claims failed as a matter of law because she completely failed to present extrinsic evidence to prove the statement in the letter was, in fact, misleading. This failure to present extrinsic evidence also meant plaintiff was not an adequate class representative, since her own self-serving testimony that she was confused was insufficient and she was unwilling or unable to take on the expense of a “costly consumer survey” necessary to provide the evidence that the statement in the letter was misleading.

Judge Grants MSJ For Defense in Convenience Fee Case

A District Court judge in Illinois has granted a defendant’s motion for summary judgment after it was sued for allegedly violating the Fair Debt Collection Practices Act because it charged a $3 service fee for payments made online via a debit or credit card. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: Service fees like the one charged here are “incidental” to the initial debt and are thus generally prohibited by 15 U.S.C. § 1692f. However, courts have recognized a “pass-through” exception to this rule. The court applied the pass-through exception in this case, finding that the fee was charged by the collector’s payment vendor and the collector did not profit from the fee. In fact, the $3.00 service fee paid by the consumer was less than the cost to the collector, thus the collector actually lost money processing online payments. 

Supreme Court Asked to Weigh in on Constitutional Question Related to TCPA

A petition has been filed with the Supreme Court to determine whether an exemption in the Telephone Consumer Protection Act that allows for calls to be made using an automated telephone dialing system without obtaining prior consent when collecting on debts owed or guaranteed by the federal government are unconstitutional restrictions of free speech. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: In Gallion v. Charter Communications, Inc., (Sept. 16) the Ninth Circuit held that the TCPA became unconstitutional in 2015, when an amendment created an exception for calls “made solely to collect a debt owed to or guaranteed by the United States.” This exception was deemed to be content-based, unconstitutional, and violated First Amendment principles. The Ninth Circuit’s solution was to invalidate the exception only, and restore the TCPA to its original, pre-2015 form. The ruling by the Ninth Circuit to sever the offending provision of the TCPA and to leave intact the remainder of the TCPA is consistent with the Fourth Circuit Court of Appeal’s decision in Am. Ass’n of Political Consultants, Inc. v. FCC, 923 F.3d 159 (Fourth Cir. 2019) where the Fourth Circuit held that “severance” of the unconstitutional government debt collection provision is the Supreme Court’s “preferred” manner in which to handle unconstitutional provisions of a statute, as opposed to invalidating the entirety of the TCPA. The Seventh and Eighth Circuit Courts of Appeal also favor severance of an unconstitutional provision of a statute, where possible.  It is also consistent with the Ninth Circuit’s Duguid v. Facebook, Inc.  926 F.3d 1146 (Ninth Cir. June 13, 2019) earlier decision on the same issue. 

However, in Gallion, Petitioners Charter and Spectrum Mgt. claim that by severing the debt collection exemption from the TCPA, the Ninth Circuit broadened the TCPA’s reach, and the Ninth Circuit should have invalidated the entire TCPA once it found part of it unconstitutional. 

The question now is whether the Supreme Court will agree to accept the petition for hearing. Because there is not an exact Federal Circuit Court split regarding the manner in which to handle the unconstitutional debt collection exception since the Ninth and Fourth Circuits are in accord and no other Circuit has yet ruled to the contrary, the Supreme Court may feel the time is not ripe to hear the challenge. If the Supreme Court grants review, could it find that the Ninth Circuit should have struck the entire TCPA as unconstitutional instead of simply excising the violative language? Would this be realistic since the TCPA has been functioning for decades before the 2015 amendment? If the Supreme Court should grant review in Gallion, we may be surprised. Let’s keep our glasses half full!

Judge Grants Motion for Judgment in FDCPA Case Over Creditor Identification in Letter

A District Court judge in Indiana has granted a defendant’s motion for judgment on the pleadings after it was sued for violating the Fair Debt Collection Practices Act because it did not adequately identify the name of the current creditor in a collection letter. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: This case should serve as yet another reminder to plaintiffs that while steps need to be taken by creditors to ensure clarity and understanding for an unsophisticated consumer, an unsophisticated consumer is not a “dimwit.” In this case, the plaintiff claimed confusion when he received a letter that included a name for the creditor as part of the account information and also added a disclosure on the bottom of the letter that provided the name of the original creditor. That plaintiff claimed that the letter’s lack of a specific explanation about the relationship between the named entities and lack of specific identification of the “current creditor,” that the collection letter violates § 1692g as this would reasonably cause confusion by the “unsophisticated consumer.”

The District Court rejected this claim and found on behalf of the creditor, following the trend that we have seen in other cases, such as the District 2019 class action against Client Services. In this case, as in part the subject matter case, the class action was based on the failure of the creditor to use the exact phrase, “current creditor.” The court used the same logic to find for the creditor that an unsophisticated consumer is not a “dimwit.” Another District Court stated it best when discussing an issue of consumer understanding, stating that while the “least sophisticated debtor” standard protects consumers, it must be interpreted in a way that protects the creditors, the collecting party, from “bizarre or idiosyncratic” interpretations of collection communications.

Appeals Court Upholds Ruling For Defendant in FDCPA Case Over Letter Referencing ‘N/A’ Interest

The Court of Appeals for the Second Circuit in a summary order has upheld a lower court’s ruling in a Fair Debt Collection Practices Act case in which a collection agency was sued for allegedly sending a letter that included false or deceptive representation when it denoted that both the Interest Accrued and Non-interest Charges & Fees were “N/A.” More details here.

WHAT THIS MEANS, FROM RICK PERR OF FINEMAN KREKSTEIN & HARRIS: Another arrow in the quiver of the plaintiff’s bar has been cast aside by the United States Court of Appeals for the Second Circuit. This Court has been a hot-bed of litigation over the disclosure of interest accrual (or lack thereof) with plaintiffs filing hundreds if not thousands of suit over “deceptive” letters. Here, the defendant agency listed several categories on its form letter, including interest accrual. In the field next to the area, it noted “N/A.” Plaintiff argued that the simple fact that a line identifying accrued interest was on the letter was deceptive to the least sophisticated consumer, who would believe that the current lack of interest did not preclude future charges. Fortunately, the Court of Appeals rejected another idiosyncratic reading of a collection letter.  Besides the benefit to agencies utilizing similar verbiage, the strong language used by the Court will benefit similar scenarios and should be instructive to district courts trying to deal with the rash of litigation based on twisted readings of collection letters.

Calif. Dems Introduce Wide-Ranging Privacy Bill Aimed to Be Tougher than CCPA

A pair of California Congresswomen have introduced a bill that aims to take the California Consumer Privacy Act, make it more comprehensive, and apply it nationally. More details here.

WHAT THIS MEANS, FROM LAUREN VALENZUELA OF PERFORMANT: As anticipated, the CCPA is (and will continue to be) a launch pad for other state and federal laws, such as this proposed federal law – the Online Privacy Act. While this bill looks like the CCPA, it is remarkedly different. For example, not only would it provide the right for consumers to access, delete, and transfer their data, it also provides rights to correct their data, the right to request “a human review of impactful automated decisions,” a right for consumers to opt-in for using their data for machine learning/AI algorithms, and a right to choose how long their data can be kept. Companies would be unable to disclose or sell personal information without explicit consent from the consumer, not use third party data to reidentify individuals, and be prohibited from using “private communications,” such as email, for ads or “other invasive purposes.” This bill would also criminalize doxing (i.e., disclosing personal information about a person with the intent of threatening, intimidating, or harassing someone), and addresses data sharing abuse. Unlike the CCPA, it would apply to non-profits, allow for a private right of action, and provide certain exemptions for journalism and small businesses. Financial service companies and their service providers have not yet figured out how to fully operationalize the CCPA, due in part to the unprecedented nature of the CCPA, the fact that its regulations are not yet finalized, and that the law itself appears to be still evolving (i.e., recently there were another round of amendments passed, and there is a ballot initiative for the 2020 election which would further change the law if it is successful). I don’t think there will be any time for the CCPA dust to settle before we see another privacy law tornado come around the corner. As companies take steps to prepare for CCPA compliance, it is wise to keep a vigilant eye on all proposed privacy laws since they reflect what our state and federal legislators have in mind for our future.

Mass. AG Reaches $4M Settlement With Portfolio Recovery Associates

The Attorney General of Massachusetts is set to announce a $4 million settlement today with Portfolio Recovery Associates over what a published report deemed to be “aggressive debt-collection practices.” More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY AND SHUSTER: The Massachusetts Attorney General resolved a four-year-old investigation with this settlement. PRA voluntarily cooperated with the investigation. Many times these settlements address conduct that occurred years prior to the opening of the investigation and don’t reflect current conduct. In fact, as a Certified Debt Buyer through the Receivables Management Association International, it has agreed to comply with even more robust standards than those required by the settlement. Of course that’s not mentioned in the AG’s press release claiming PRA consistently broke its consumer protection and debt collection laws. Companies routinely agree to these settlements and payments because of the high cost of defending the case, the uncertainty of litigation and the disruption to its business.

Fla. Judge Grants Motion to Compel in TCPA ATDS Case

A District Court judge in Florida has denied all of the arguments put forth by a plaintiff why his Telephone Consumer Protection Act lawsuit alleging his cable provider called him more than 150 times using an automated telephone dialing system without first obtaining his consent should not be arbitrated and granted the defendant’s motion to compel arbitration. More details here.

WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: One of the many due diligence steps agencies should consider including in their TCPA compliance process is a review of the underlying account documentation, contract or terms of service to confirm that the consumer provided authorization to be called using an autodialer, to receive texts or to receive prerecorded messages before using these forms of communication. Also, look for an arbitration clause when evaluating the terms as an arbitration provision can be used to resolve disputes outside of the courtroom.

The best terms include both the consent and the arbitration language in the same document signed or otherwise authenticated by the consumer. These terms however do not have to be in the same document to be effective. 

Recently in Tucci v. Bright House Networks LLC, d/b/a Spectrum the defendant successful compelled arbitration in a TCPA class action lawsuit filed in Florida. The plaintiff signed a work order document that included a statement agreeing to comply with the Terms and Conditions and a statement that  “. . . These terms include a mandatory arbitration requirement with respect to all disputes.” The terms included both the arbitration clause and the consent to communicate via an autodialer. The court found that since the plaintiff signed the work order agreeing to the Terms and that the work order specifically referenced that an arbitration clause for all disputes was included in the terms that the plaintiff explicitly consented to everything in the terms.

Tucci distinguished the Eleventh Circuit case Gamble v. New England Auto Fin., Inc. In Gamble the Eleventh Circuit ruled that the arbitration clause did not cover the terms related to consent because the consent terms appeared in a separate unsigned document.  

To protect your business from the unlimited damages provision of the TCPA at a minimum look for a reference to the Terms and Conditions in the signed or otherwise authenticated document and confirm that the terms contain consent and arbitration language. 

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

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