Compliance Digest – January 13

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.


Plaintiff’s Attorney Files TCPA Suit After Prepaid Phone Receives 300 Unsolicited Text Messages

A plaintiff’s attorney who has represented many individuals in cases against companies in the credit and collection industry has filed a lawsuit of his own, alleging a financial institution violated the Telephone Consumer Protection Act by sending unsolicited text messages via an automated telephone dialing system to a prepaid cell phone he uses to “make anonymous telephone calls to scam operators” when investigating claims of his clients. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: Earlier this week, an attorney who has represented clients in cases against companies in the credit industry filed a lawsuit of his own, alleging Fifth Third Bank, N.A. violated the Telephone Consumer Protection Act (“TCPA”). In the complaint, filed in the Western District of Michigan, Southern Division, the plaintiff alleges the bank sent hundreds of unsolicited text messages via an automated telephone dialing system (“ATDS”) to a prepaid cell phone he uses to “make anonymous telephone calls to scam operators” when investigating claims of his clients.

The plaintiff claims the bank did not obtain his prior express consent to send the text messages, did not send the text messages for emergency purposes, and willfully and knowingly violated the TCPA. Plaintiff is seeking treble damages in the amount of $1,500 per violation – multiplied by the purported 304 text messages, this number could quickly add up.

This Complaint is another example of how creative (and perhaps desperate) some Plaintiff’s lawyers are becoming in TCPA litigation. Moreover, the fact that Plaintiff failed to opt out and affirmatively chose to continue receiving these text messages should be an interesting argument that could be made in a Court that has been historically TCPA defense friendly.

Judge Denies MTD in Class Action Over Wrongful Billing and Collection Claims

A District Court judge in Alabama has denied a defendant’s motion to dismiss after it was sued for allegedly wrongfully billing and collecting payments from insured patients and collecting payments that exceeded what the defendants were entitled to recover from insurance companies. More details here.

WHAT THIS MEANS, FROM LAUREN VALENZUELA OF PERFORMANT: While defendant Avectus’s hospital client’s actions set the chain of events in motion, the court weighed many factors to find that Avectus was a primary defendant – thereby denying Avectus’s motion to dismiss. For example, the court looked at whether any of the claims rested solely upon Avectus’s actions and found that some did. In fact, the court found that for at least one claim Avectus was “likely the only potential target.” The court looked at who the plaintiff sought to hold responsible and found that plaintiff sought to hold Avectus responsible for its “own actions” as opposed to seeking Avectus to pay for the actions of its hospital client. Lastly, the court also evaluated the level of independence Avectus potentially had when conducting its debt collection activities and when exercising its own judgement. All these factors compounded together to lead the Court to find that Avectus was a “real target” of the litigation; and accordingly, that Avectus was a primary defendant thereby defeating Avectus’ argument that the Class Action Fairness Act’s (CAFA) local controversy exception applied. This opinion shows that determining whether CAFA’s local controversy exception applies is a fact specific inquiry.

Sixth Circuit Affirms Lower Court’s Dismissal of FDCPA Suit Over Plaintiff’s Anxiety

Anxiety about whether a collection law firm will sue to collect on an unpaid debt is not enough to qualify as a concrete injury under the Fair Debt Collection Practices Act, the Sixth Circuit Court of Appeals has ruled in upholding a lower court’s dismissal of a complaint. More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: The consumer in Buchholz v. Meyer Njus Tanick, PA (6th Cir. 2020) filed an FDCPA claim against a debt collection law firm claiming it sent him a collection letter without having first performing a meaningful attorney review of the debt. The plaintiff’s only alleged damages were being anxious about not knowing whether he would be sued over the debt. The Sixth Circuit dismissed the case for lack of subject matter jurisdiction (citing Spokeo) finding a consumer cannot file a case without having suffered a concrete injury traceable (i.e., connected) to the alleged wrongdoing. The Buchholz court found no concrete injury could arise from the letter because, even if not reviewed by an attorney, there was no other allegation of impropriety such as inaccurate information.

Overall, the Buchholz opinion is a good one for the good guys. The opinion says the purely procedural requirement of meaningful involvement does not create a concrete injury when the plaintiff cannot connect it to the alleged damages.  In this case, the only alleged damage was anxiety about whether a lawsuit would be filed. The court found the same anxiety would have existing independent of whether the law firm meaningfully reviewed the debt prior to sending the letter, so the alleged violation did not cause the anxiety.  The court further said anxiety on its own is not a concrete harm sufficient for standing. “Buchholz cites no case from this court holding that anxiety, on its own, is an injury in fact—and as best we can tell, no such case exists.”

This case, though, adds a log to the fire of ambiguity of when a procedural violation of the FDCPA can be elevated to a concrete harm and when it cannot. The opinion in Spokeo was trucking along just fine until the court said that some procedural violations, without more, can give rise to a concrete injury sufficient for standing. The court gave examples like the right to vote and other first amended rights. Pretty hefty stuff. Many district and appellate courts, though, have since found purley procedural violations a debt collector not providing information required by the FDCPA sufficient for standing because it created an informational injury (deprived the consumer of information to which it had a right), or the lack of the information created a future risk to the consumer.

Even the Sixth Circuit, the same court that gave us this Buchholz opinion, is inconsistent. In Macy v. GC Servs. Ltd. P’ship, 897 F.3d 747, 754 (6th Cir. 2018) (cited in the Buchholz opinion), the Sixth Circuit found a concrete injury to the consumer when a collection letter said the debt collector would provide the consumer with verification of the debt’s validity but did not say tell the consumer the request must be in writing. The court held the plaintiffs had standing because the debt collectors’ misstatement could have led the plaintiffs to contest the debt orally and waive some of the FDCPA’s other protections. Thankfully, the Seventh Circuit in Casillas v. Madison Avenue Assocs., Inc. (7th Cir. 2019) said the opposite on the same issue (it found “no harm, no foul”).

The overall take away from Buchholz is that it adds to the list of FDCPA cases dismissed on grounds of standing. It is also a beneficial opinion because it found plaintiffs cannot establish concrete injury by simply pleading anxiety (which is a very common pleading practice). Collectors and lawyers must, though, be ready for the inconsistency of courts when rulings on the issue of standing and on whether emotional injuries like anxiety alone can justify standing. That should not dissuade defendant from making these arguments because, as in Buchholz, they can be very successful.

Judge Denies MTD in Letter Case Itemizing Fees and Interest

A District Court judge in Wisconsin has denied a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act and ruled that a jury should decide whether a collection letter sent to the plaintiff was misleading because it included itemized line items for “fees” and “interest” even though neither were accruing. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The recent decision in Knaak v. Optio Solutions raises a interesting question I hadn’t considered before – who do I want reviewing a letter as to its clarity (i.e. misleading or deceptive) – a judge or a jury?  One of the issues I’ve always had with the “least sophisticated consumer” standard is that it’s applied for the most part by the most sophisticated individuals, meaning federal court judges for the most part. In the 7th Circuit, which includes Wisconsin, the Circuit has established three categories of cases. Set one are those where it is “plainly and clearly not misleading.” Lox v CDA Ltd, 689 F 3d 818 (7th Cir 2012), Set two “includes debt collection language that is not misleading or confusing on its face, but has the potential to be misleading to the unsophisticated consumer.” Set three is where the challenged language is “plainly deceptive or misleading.”

In Knaak the court found that the language at issue fell into set number two where “plaintiffs may prevail only by producing extrinsic evidence, such as consumer surveys, to prove that unsophisticated consumers do in fact find the challenged statements misleading or deceptive.” Based on that finding the court denied the defendant’s motion to dismiss.

Talking strategy consider the following – does this put the defendant in a better or worse position going forward? In those circuits where the misleading nature of a collection letter is a matter of law-once a motion to dismiss is denied, a defendant is backed into a corner without a lot of room to maneuver. On the one hand it provides a second opportunity to establish that the language/letter in question is clear. On the other hand it raises the costs of defending. The additional costs that the plaintiff will incur to establish that the language/letter is misleading or deceptive can have two effects. One positive and one negative. It may make a plaintiff’s counsel rethink going forward as he/she will have to risk investing more funds with only a 50% chance of success. On the other hand if the case is lost, it will raise the costs to Defendant. These factors may weigh in favor of both sides seeking a settlement.  

Getting back to the facts of this case, the letter in question listed all of the components making up the current amount due. The breakout included interest and fees. 

An unsophisticated consumer reading the Letter would have no idea who had applied the fees and interest stated therein; the Letter does not offer an explanation on that point. Further, any reference to the billing statement would only increase the debtor’s confusion. The amounts in the billing statement are differentthan those in the Letter, so the purported “matching” between the Letter and the statements would be fruitless. Knaak at 8. 

The fix? Identify those amounts as pre-charge off and advise that they do not continue to run, if that is the case. “[A]n unsophisticated consumer could infer that the itemization of those charges means that the amounts may change over time.” Knaak at 5. At the end of the day, the lesson here is read your letters, then have a non-lawyers read your letters, then read your letters again. Cheaper than the alternative, but that just my opinion.

$24M Settlement Reached in FCRA Class Action

Experian has reached a $24 million settlement after it was sued in a class-action alleging it violated the Fair Credit Reporting Act by reporting delinquent debts on payday loans that were deemed to be illegal. More details here.

WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: After a vibrant game of pinball in the 9th Circuit, Experian has elected to settle its battle over reporting loans originated by defunct lender, Western Sky Financial. For those that may recall, Western Sky was a lender based inside the borders of the Cheyenne River Indian Reservation. Claiming sovereign immunity, Western Sky issued short-term, high-interest payday loans at exorbitant interest rates. For example, according to some accounts, a borrower receiving $9,925 would end up paying back more than $62,000.

Western Sky loans were almost immediately resold to CashCall, which also reimbursed Western Sky for the costs of its web servers and maintenance, marking expenses, and bank fees, as well as some office and personnel costs. Based on its lending practices, Western Sky became the subject of substantial regulatory scrutiny. In 2013, the CFPB sued Western Sky contending that CashCall, not Western Sky, was the “true lender” and thus, its loans were usurious and illegal. CashCall lost and Western Sky ceased operations. Yet, some credit reporting agencies apparently did not cease in reporting the illegal loans.

In this particular suit, the plaintiffs alleged that Experian, despite knowledge of the illegal nature of the loans, continued to report debts originating with Western Sky on consumer reports. The plaintiffs contended that the reporting constituted willful violations of the Fair Credit Reporting Act. After an initial win for Experian on summary judgment, the Ninth Circuit reversed and remanded. Plaintiffs then succeeded on class certification and Experian sought leave to appeal, while also acting for reconsideration. On the eve of the district court’s reconsideration decision, the parties reported settlement on a class-wide basis.

The settlement provides for a total payout of $24 million, which will be used to make automatic cash payments to all class members in the amount of $270 each. According to settlement documents, counsel for the class intends to move for an award of 35% of the settlement fund ($8.4 million). While settlement certain makes sense given the optics of the Western Sky loans, the settlement is quite the score for plaintiffs’ counsel as similar suits have settled for substantially less.

MTD Granted in FDCPA Case Over Disputed Payment Due Date

A District Court judge in New York has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because it was allegedly not specific enough when providing a deadline to accept a settlement offer in a collection letter. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: The holding in this case posits a straightforward concept: when analyzing a claim that a collection letter is confusing, read the entirety of the letter for reasonable context. Here, the claim was based on language of a settlement offer, but really the principle can apply to any collection letter. Here, the plaintiff argued that the “due date” of a settlement was confusing because it could mean either the date that payment is mailed, or the date that payment is received. However, the very next portion of the letter referenced the “timely receipt” of the consumer’s payment. Thus, when the letter was read in whole there was no ambiguity. Thankfully the district judge did not fall prey to this ridiculous waste of judicial resources and admonished the plaintiff for failing to read the entire letter.

President Signs TRACED Act Into Law

President Trump signed the TRACED Act into law on Tuesday, and while the law is not expected to put an end to individuals receiving annoying robocalls and will likely not cause too many headaches for the credit and collection industry, it is an important piece of legislation that addresses a very sore subject for consumers and collectors alike. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: The TRACED Act is an “anti-robocall” bill that has amended the TCPA in several respects.  Perhaps most importantly, it gives the FCC even more authority and leeway to promulgate TCPA rules and levy high penalties against perceived violators.  Accordingly, we might expect the FCC to take an increasingly active role in this regard, much like the CFPB does in the consumer finance arena.  And, it already broadens the authority of the FCC to levy civil penalties of up to $10,000 per call on people who intentionally flout telemarketing restrictions.

Another key portion of the TRACED Act is the new requirement on telephone carriers to adopt call authentication technologies to combat unwanted robocalls and caller ID spoofing (Shaken/sstir).  This will, for example, restrict the ability of callers to hijack a phone number to match the area code of the called party, which makes the incoming call appear familiar and more likely to be answered.

As you recall, it was the recent House version of a somewhat similar Bill (Stop Bad Robocalls Act Bill) that contained Section 2 which would have mandated the FCC to promulgate an autodial definition, if it passed.  The problem was how was the FCC going to issue a narrow autodialer (ATDS) definition in the context of the bill named Stop Bad Robocalls Act?   The TRACED Act does not address the ATDS definition or other highly-anticipated rules that will significantly affect TCPA litigation commenced against creditors and collectors by private plaintiffs.  For that, we’ll have to continue to wait for the FCC to act on its own.

Appeals Court Upholds Lower Court’s Ruling in FDCPA Case Over Dual Creditor Names in Letter

The Court of Appeals for the Seventh Circuit has upheld a lower court’s ruling in a “meritless” case against a collection agency that was sued for allegedly violating the Fair Debt Collection Practices Act by mentioning the original and current creditor in a collection letter. More details here.

WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: Good news for the industry out of the Seventh Circuit for the start of the new year and new decade. In Denis v. Niagra Credit Solutions, the Seventh Circuit affirmed the lower court’s dismissal of a class action lawsuit alleging failure to explain the difference between the original creditor and current creditor listed on the initial demand letter confused the least sophisticated consumer. Since the letter listed “Washington Mutual Bank” as the “original creditor” and “LVNV Funding” as the “current creditor,” the court found the letter met the collector’s obligations under the FDCPA to list the owner of the debt.

Two key takeaways: (1) there is no obligation to explain the difference between the original creditor and current creditor if both are listed in the initial demand letter. The court did indicate that a sentence explaining that LVNV purchased the debt from Washington Mutual might have been helpful but made clear it is not required by the FDCPA. (2) The defendant made its motion to dismiss on the pleadings of the lawsuit. In 2019, collection agency defendants lost several cases because the motion to dismiss was made on the pleadings instead of later in a motion for summary judgment. When a defendant waits to file a summary judgment motion to dismiss the evidence developed through discovery and included in the summary judgment motion can arm the court with the facts needed to dismiss. At a motion to dismiss on the pleadings, however, the court can only look at the facts on the complaint and determine whether if true there is a violation of the law. The decision to bring a motion to dismiss on the pleadings should be taken with great caution because the standard favors the plaintiff and the information before the court is so limited it can be difficult to show the judge the whole picture. Here, the facts listed in the complaint showed that the agency defendant followed the FDCPA and provided the name of the owner of the debt. Therefore, this was a perfect case to ask a court to dismiss immediately in a motion on the pleadings – and the result beneficial to the industry.

Judge Grants MSJ For Defendant Over Disputed Debt

To the benefit of a collection agency, a District Court judge has ruled that a plaintiff alleging that the agency violated the Fair Debt Collection Practices Act and the Fair Credit Reporting Act did not offer “even a scintilla” of evidence to substantiate those claims and granted summary judgment in favor of the defendant. More details here.

WHAT THIS MEANS, FROM PORTER HEATH MORGAN OF MORGAN FINANCIAL GROUP: This order provides a win for the industry and the correct result when there is no evidence produced by a plaintiff to support a dispute. However, this likely will be of little consolation for the agency involved.

Pro-se cases rarely are quick and easy because of the court’s deference to pro-se parties. Unfortunately, this deference often adds significant time, stress, and costs to agency owners, and this case is no exception.  This case is an example where the court bent over backwards multiple times to keep the case open and provide a plaintiff with every opportunity to pursue his claim and file multiple pleadings, at the expense of the defendants. This case was originally filed almost three years ago in March 2017 and the court’s order addressed pending motions dating back from April 2019. Additionally, there was evidence submitted to the Court of unusual, harassing, and potentially threatening conduct by the plaintiff towards the defendant and its counsel that appears to not have given the same deference afforded the plaintiff. I’m sure the defendants are relieved to have this matter over, but this is a case where no one really wins, even though the correct decision was made.

Colo. Judge Grants MSJ for Defendant Over Time-Barred Debt Disclosure in Letter

A District Court judge in Colorado has granted a defendant’s motion for summary judgment after being sued for allegedly violating the Fair Debt Collection Practices Act by saying it would not sue to collect on a time-barred debt instead of saying it could not sue to collect on it. More details here.

WHAT THIS MEANS, FROM CHRIS MEIER OF THE CMI GROUP: While the odds of winning the lottery remain higher than that of drafting the perfect collection letter, at least some courts are willing to apply common sense and rule in favor of the good guys.  

In Goodman, the defendant was seemingly going above-and-beyond in the disclosure department by providing a “time-barred” notice in its letter (albeit at the direction of a CFPB consent order), but the plaintiff still took issue. By saying “we will not sue” rather than “we cannot sue”, the plaintiff argued that the least sophisticated consumer could have been confused as to the enforceability of the debt. Additionally, the plaintiff alleged that a “revival” notice should have been included to advise the consumer that partial payment or a promise to pay would restart the relevant statute of limitations.

Having no definitive guidance from the Tenth Circuit, however, the District of Colorado was free to address this case as it saw fit. Regarding the former claim, the Court was quick to rule that that the Defendants’ use of the word “will not” rather than “cannot,” in context, is not misleading. Citing to a case out of the E.D. Wash (Elston v. Encore Capital Group), the court pointed out that “[the letter] ‘uses basic language (1) that conveys the substance of the underlying legal concept and (2) clearly informs the consumer that the defendants will not sue them based on the age of the debt.”  

As to the latter claim, the court was again inclined to side with the defendants, noting that in Colorado, a debt can only be revived if (a) the payment is made after the statute of limitations has run and (b) the debtor expresses clearly and unequivocally their intent to revive the debt — neither of which was applicable here. Yet, despite this easy out, the court went on to add that any attempt at a revival disclosure would likely be fraught with peril anyway, given how different each state’s statute of limitations is as well as how each applies to a given set of facts. Add in the difficulty of creating such a notice that would be “sufficient-but-not-confusing” and the Court felt such disclosures “are best left in the hands of the legislators. Game. Over.  

Next steps? If you are currently using a “time barred” disclosure in states that do not specify language, it might be worth reviewing your use of “will not” versus “cannot.” Otherwise, I would just suggest rejoicing in the fact that every once in a while courts see things exactly as we do. 

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