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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State Appeals Court Rules Lack of License Not Enough to Sever Arbitration
A state Appeals court in New Jersey has upheld a lower court’s ruling that a debt buyer that purchased a delinquent account and subsequently sued to collect on the unpaid debt is entitled to the same arbitration clause from the original agreement, even though the debt buyer was not licensed in New Jersey. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: Judges are not always the most clear writers, but this decision was very clear – where the arbitration agreement clears provides for the types of disputes to be decided by an arbitrator (including enforceability and arbitrability), the case must go to arbitration. For that principal the court relied on the recent United States Supreme Court decision, Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. ____, 139 S. Ct. 524, 530 (2019). The Henry Schein case is one that could assist many when seeking to enforce arbitration agreements and really hammers home the need to read arbitration agreements carefully. Yes, the result was good for the creditor/debt buyer in this instance, but only because the arbitration agreement contained explicit provisions. I could easily see a court deciding not to enforce an arbitration agreement where the provision was less clear; in fact, that scenario happens often.
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Supreme Court Sets Date to Hear Arguments in CFPB Constitutionality Case
Along with looking forward to a final debt collection rule in 2020, the accounts receivable management industry can now add another important date to their calendars. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: Seila Law is an important case. It will determine whether the CFPB’s for-cause director appointment clause will be held unconstitutional. If it is held unconstitutional, can it be severed from the rest of the CFPB statute so that the entire statute is not deemed unconstitutional? Based on case law precedent, and the overall tenor of current legal analysis, it appears that the Supreme Court could rule that the CFPB’s for-cause appointment clause is unconstitutional. And, if so, will the Supreme Court seek to save the rest of the Dodd-Frank act via the severance clause built unto the CFPB?
If the CFPB’s current structure is held to be unconstitutional, what impact would that have on any new proposed debt collection rules that may be approved by the CFPB director. Although we have seen publications indicating the CFPB will potentially issue final debt collection rules in May 2020, the question is whether that will happen in light of the CFPB’s current position as to the unconstitutionality of its structure, and the fact the Supreme Court may issue its ruling in Seila in June 2020 or earlier. If the Seila decision is handed down before the CFPB finalizes its new debt collection rules, there is authority that suggests pending rulemaking can be saved by a review by a Director whose tenure is subject to a constitutionally valid appointment clause. And, even if new CFPB rules are issued before the Supreme Court rules in Seila, authority suggests a post-Seila CFPB director can review and ratify the new rule, thus potentially avoiding a further challenge thereto.
There is so much to think about between Seila and the CFPB’s upcoming debt collection rulemaking and the impact one may have on the other. This is a situation where one must fasten their seatbelts in order to make it through the rollercoaster ride that lies ahead. More to come!!
Advocacy Group Sues CFPB Over Lack of Student Loan Supervision
An advocacy group filed suit against the Consumer Financial Protection Bureau yesterday, accusing the agency of not doing enough to protect individuals from companies that service and collect on student loans. More details here.
WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Asking a court to make a federal agency do its job is never easy. The non-profit Student Debt Crisis is trying creative ways to ask a court to make the CFPB and the Department of Education to do their jobs the way SDC thinks it should. Rarely do courts choose to enter this fray so we can likely expect the government to quickly move to dismiss the complaint. SDC did choose the best federal court circuit in the country, however, to make such a request. The 9th Circuit is by far deemed the most liberal in the U.S. and a favorite of plaintiff’s attorneys representing groups like consumers and borrowers. Even if the courts grant SDC’s requested relief, it won’t impact how or if the CFPB would supervise servicers of government debt. Which leaves us with the likely reason for the suit – bad press for the Trump administration.
Judge Denies MTD in FDCPA Case Over Judgment Letter Sent to Wrong Address
A District Court judge in Ohio has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by accidentally attaching a judgment to the house of the plaintiff’s parents instead of the plaintiff. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: This case is not as clear-cut as it appears from the result of this motion’s summary. In this case, the plaintiff is not the debtor, rather the debtor’s mother who happened to have the same name (with the exception of a middle name) and lived at the same residential address. The plaintiff, the mom, is claiming a cause of action under the FDCPA due to the confusion set forth by a letter sent to the debtor, the daughter to the shared home of the mother and daughter. The letter addressed to the daughter, but without the middle initial, also to the plaintiff, her mother was sent to notify the daughter of a judgment lien on all of the daughter’s real property. As the plaintiff read the letter that was addressed to her at her address, she claims that she thought the letter referred to a lien on her and her house, her own real property, not her daughters since without the middle initial there is no way of discerning the two by name.
The court was asked to determine if the case should be dismissed or if there is a possibility that the defendant violated one of the prohibitions set forth in §1692e1 by not clearing distinguishing the lien to be the daughter’s and not for the plaintiff. The court decided to deny the motion to dismiss and pointed to the fact that it is reasonable to see where a party could be confused if he or she was not familiar with the legal process of foreclosure or judicial process. The court could not speak to its opinion on the call and conversations that occurred after the receipt of the letter, as this would require additional evidence not reviewed for this motion. The court mentions that the defendant claims notes are retained from the call, but there is no mention of a recording.
Therefore, if the notes provided by the defendant cannot contradict the claims that the plaintiff made as it relates to the response she was met with when she called the defendant to inquire about the letter, or if the failure to correctly identify the debtor with her middle name is found to be enough to create an action under the FDCPA, the question is then, was the violation unintentional and inadvertent and simply a result of a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such an error2. Or should have procedures been put in place to avoid this type of mistake.
The take away for all debt collectors from this case is that procedures and policies should be in place to avoid even the most unlikely of scenarios to avoid costly litigation to find out if such should be in place.
1 Bauman v. Bank of Am., N.A., 808 F.3d 1097, 1100 (6th Cir. 2015); 15 U.S.C §1692a. To prevail on a FDCPA claim, a plaintiff must establish that: (1) he or she is a “consumer,” (2) the “debt” arose out of a transaction which was “primarily for personal, family or household purposes,” (3) the defendant is a “debt collector” and (4) defendant violated one of the prohibitions set forth in § 1692.
2 15 U.S. C. 1692k(c)
Pai: FCC Working on Regs For Carriers Not Moving Fast Enough on SHAKEN/STIR
Not necessarily content with how quickly mobile phone carriers are implementing call authentication technology, the Federal Communications Commission is “actively” prepping regulation that would “make it happen,” according to agency Chairman Ajit Pai, who made the remark during a speech at an anti-robocall conference in Massachusetts yesterday. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN SANDERS: FCC Chairman Ajit Pai provided an update on the FCC’s efforts to combat robocalls at the recent New England States Symposium on Robocalls. His remarks indicate he is generally pleased with efforts carriers have made to date with implementation of the SHAKEN/STIR caller ID authentication framework. But his remarks also note the stark reality that we are only weeks away from the end-of-the-year deadline for major carriers to complete voluntary implementation, and that he does not believe that the FCC has seen sufficient efforts to meet this deadline. It will be interesting to see what, if anything, comes of Pai’s threat to call an FCC vote on rules “to make this happen” if he is not satisfied.
Pai’s comments come fresh on the heels of Congressional efforts to regulate robocalls. On Wednesday, Dec. 4, the House passed the Pallone-Thune TRACED Act, which would require most phone companies to make sure calls are coming from real numbers. The compromise legislation would also require carriers to block robocalls without charging consumers and small businesses. Pursuant to the bill, the FCC would have one year to issue rules that (i) govern call blocking and provide a safe harbor for voice service provides (VSPs) who comply, (ii) prohibit spoofed calls and texts; and (iii) ensure call blocking is provided transparently and for free. Moreover, it would expand the FCC’s authority to enforce the TCPA by authorizing the Commission to issue civil forfeiture penalties. Notably, the compromise version of the bill does not (1) modify the definition of automated telephone dialing systems, (2) mandate a deadline by which the FCC must issue a new interpretation of the term, or (3) allow consumers to revoke contractual consent – all three had been included in original the version of the bill passed by the House. Only three House members voted against this compromise version of the Act, stating concerns that it could give the FCC too much authority, which is a sentiment that has been echoed by the National Consumer Law Center. The bill now moves to the Senate, where it is expected to unanimously pass this month.
Judge Grants Plaintiff’s Motion for Judgment in FDCPA Counterclaim Over Collector Identification in Letter
A District Court judge in Ohio has denied a collection agency’s motion for judgment on the pleadings and granted the plaintiff’s motion for judgment on the pleadings in a counterclaim that was filed by the defendant after it was accused of violating the Fair Debt Collection Practices Act by not identifying itself as a debt collector in a letter that was sent to the plaintiff. More details here.
WHAT THIS MEANS, FROM MONICA LITTMANN OF FINEMAN KREKSTEIN & HARRIS: A District Court judge in Ohio has denied a collection agency’s motion for judgment on the pleadings and granted the plaintiff’s motion for judgment on the pleadings in a counterclaim that was filed by the defendant after it was accused of violating the Fair Debt Collection Practices Act by not identifying itself as a debt collector in a letter that was sent to the plaintiff.
At issue was a follow-up letter, which stated the following: “This is an attempt to collect a debt. Any information obtained will be used for that purpose.” The court denied the defendant’s motion for judgment on the pleadings. The court analyzed Section 1692e(11) of the FDCPA, which states that a subsequent communication must state that it is from a debt collector. The judge stated that nothing in the FDCPA exempted a collection agency from this requirement. Although the letter did discuss the collection of a debt, the judge stated that “[t]elling the debtor what you want is not synonymous with who you are. This requirement is not, after all, hard to meet. One need merely read and follow a simple command: namely, to tell the debtor forthrightly that the communication comes from a debt collector.” This case illustrates that collection agencies have to be mindful of language in all letters, not just initial letters. In addition, some judges consider the context of a letter as a whole to evaluate whether the plaintiff has stated a claim for an FDCPA violation. Others like the judge in this case take a very strict view in finding that the FDCPA means what it says.
Appeals Court Overturns Certification in TCPA Case Over Lack of Revocation of Consent
The Court of Appeals for the Eleventh Circuit has reversed a lower court’s certification of a class-action in the Telephone Consumer Protection Act case, ruling that receiving a telemarketing call and not revoking consent to be contacted does not rise to the standard of a concrete injury under Article III of the Constitution. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: It’s Alive! Spokeo is very much alive and kicking at least when it comes to TCPA claims. The three requirements a Plaintiff must prove to establish Article III standing are: (1) the plaintiff must allege that she suffered an “injury in fact” that is “concrete and particularized” and “actual or imminent”; (2) that injury must be “fairly traceable to the challenged action of the defendant”; and (3) it must be “likely . . . that the injury will be redressed by a favorable decision.”
Because the issue on appeal concerned a underlying District Court’s decision that had certified a TCPA class based on a “bare procedural harm” — devoid of a concrete injury — the Eleventh Circuit reversed the District Court’s certification of a class and remanded the case for further proceedings. The appellate court held that the class as certified involved individuals who claimed injury that were not fairly traceable to the challenged action of the defendant. As such the second requirement necessary to establish Spokeo standing was not met. The upshot is to dive deeply into details of the specific claim to determine if there truly is a “traceable” connection to the injury claimed. If that connection doesn’t exist, bring a Spokeo standing motion.
Regulator Issues Proposed Rule to Address Madden Fix, Codify ‘Valid When Made’
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation — federal regulators that oversee national banks and savings & loans — are issuing a proposed rule that would clarify the “valid when made” doctrine which would ensure the terms of loans would remain valid after they are sold or transferred. More details here.
WHAT THIS MEANS, FROM JASON COVER OF BALLARD SPAHR: The proposed rulemakings issued by the OCC and the FDIC have the potential to mitigate industry concerns caused by the Second Circuit’s Madden decision as to whether the terms of a loan originated by a bank is fully enforceable (i.e., “valid when made”) when purchased by, or assigned to, a third party (e.g., purchases made pursuant to forward flow or similar debt purchase agreements). However, both the OCC and the FDIC failed to address the related question highlighted by the Colorado Attorney General’s actions against Marlette Funding and Avant of what factors indicate that a bank is either a real party in interest to a loan or otherwise has sufficient economic interest in an assigned loan to render the bank the “true lender.” This is particularly unhelpful for loan programs in which banks rely on the assistance of third parties to originate loans, such as innovative Fintech “bank programs,” and the FDIC’s statement that it will “view unfavorably entities that partner with a State bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing State(s)” indicates that resolution to the issue is unlikely in the near future. Regardless of this missed opportunity, the proposed rules clearly represent a positive step forward by two prudential regulators that merits further monitoring going forward.
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