Compliance Digest – March 30

I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics.  And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.

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.

Arizona Senate Passes Bill Allowing Partial Payment to Revive SOL

A bill has been passed in the Arizona Senate and is now working its way through the Arizona House of Representatives that would restart the statute of limitations to file lawsuits to collect on unpaid debts when a partial payment is made. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: Arizona’s statute regarding the ability to revive a debt once the statute of limitations has passed is incredibly straightforward which is nice when looking at it from a compliance perspective and crafting disclosures. However, the statute has been questioned in Arizona state appellate decisions and in an era where statutes of limitation appear to be shrinking it is not surprising that Arizona is revisiting this statute. While the CFPB is attempting to regulate disclosures related to debt that is beyond an applicable statute of limitation, the Arizona statute and proposed legislation point to a glaring hole in the CFPB’s attempt – debt revival. It is clear the CFPB would like there to be uniformity regarding statute of limitation disclosures, but the fact that such statutes are creatures of the states (as is revival) is a hurdle I do not think they can overcome. That being said, Arizona has not change its law – yet. This legislation should be monitored by all who collect debt from Arizona residents, although with the current crisis who knows how far Arizona’s House of Representatives will get.

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Judge Awards $42k in Sanctions to Defendant in FDCPA Case

A District Court judge in Connecticut has awarded a defendant nearly $42,000 in fees and costs after it was sued and won a motion for summary judgment for allegedly violating the Fair Debt Collection Practices Act by not using its proper name in a collection letter sent to the plaintiff. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH VOLUCK: It is always heartwarming for the ARM Industry to read about a trial court leveling sanctions against a plaintiff and/or plaintiff’s counsel for pursuing frivolous litigation. There is not a single agency that has not been the subject of such litigation. But far too often, judges are inexplicably loathe to punish a plaintiff. 

There is nothing particularly unique about this case to explain why the plaintiff was sanctioned other than a judge who may have seen enough of these cases. Also, given the simplicity of this case – agency allegedly not using its proper name even though the name used was registered in the state where it was incorporated- it is troubling that the agency was subjected to two years of litigation before prevailing. 

Agencies should be bringing more motions for sanctions against plaintiffs. The percentage of success will slowly increase if judges are forced to consider the many ways plaintiffs abuse the FDCPA. The agency in this case tried to settle. It was the plaintiff’s greed for more money that ultimately forced the agency to continue to litigate, thus leading to this victory. Perhaps this should be less of an accident than a designed strategy. 

Judge Rules Client Code on Outside of Mailer Violates FDCPA

A District Court judge in Pennsylvania has ruled that a six-digit number referring to a client code on the outside of a postcard constitutes a violation of the Fair Debt Collection Practices Act and has granted a plaintiff’s motion for summary judgment while also denying competing motions from both sides as to whether the type of postcard used also violates the FDCPA. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: Earlier this month, a District Court judge in Pennsylvania ruled that a six-digit client code on the outside of a mailer postcard constituted a violation of the Fair Debt Collection Practices Act (“FDCPA”). The plaintiff in McRobie v. Credit Protection Association had filed a class-action lawsuit after receiving a mailer from the defendant. In considering that the number on the outside of the mailer constituted a violation of the FDCPA, the judge noted that it “pertain[s] to [McRobie’s] status as a debtor and [CPA’s] debt collection effort,” and granted the plaintiff’s motion for summary judgment. The judge denied competing motions from the parties as to whether the type of postcard used also violates the FDCPA. This case is a good reminder for both debt collectors and creditors that some courts continue to be incredibly conservative when finding violations of the FDCPA, especially when it comes to postcard notices.

Bill Introduced in Senate to Prohibit Negative Credit Reporting During Crisis

A bill to amend the Fair Credit Reporting Act has been introduced in the Senate that would prohibit the reporting of negative items on individuals’ credit reports during the coronavirus outbreak. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY AND SHUSTER: The government is asking all businesses to make sacrifices during the COVID-19 crisis, and now it’s asking the receivables management industry to step up. Two Democratic senators introduced the bill so unless it obtains bipartisan support, it is unlikely to advance beyond the committee to which it was assigned. That won’t stop states such as New York and cities like Chicago that have ordered a halt to certain debt collection efforts during the crisis. Of course, many private companies collect debt on behalf of governmental entities. The trend is likely to expand as internationally, the International Money Fund and the World Bank are calling on countries to grant forbearance to poorer countries and their debt.

CFPB Releases Annual FDCPA Report

The Consumer Financial Protection Bureau on Friday released its annual report on its administration of the Fair Debt Collection Practices Act, summarizing its enforcement activities, complaints filed by consumers, its proposed debt collection rule, and what it has done to educate consumers about debt collection. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW & CULBERTSON: This past week the CFPB and FTC issued a joint annual report on the FDCPA. It is 42 pages, plus an appendix with numerous links, and provides a relatively easy overview of the consumer complaints, enforcement actions, litigation activity, community outreach, and rulemaking activity. Perhaps as expected, it makes no mention of the litigation pending before the Supreme Court on the CFPB’s constitutionality (Seila Law v CFPB).

Some of the highlights on debts and complaints are: (1) consumer debts increased to $14.15 trillion, (2) consumer complaints to the regulators actually decreased by 8% – good news for the industry, (3) the top category, again, for consumer complaints is “the debt is not owed” – coming in at 45% of all complaints, (4) over 90% of all complaints are closed with the company response and no monetary relief provide, and (5) only 1% (300) of the complaints were closed with a monetary payment to the consumer.

On the litigation front, the report identified five cases in which the CFPB provided an amicus brief. It also identified six CFPB or FTC enforcement actions. It claims in total that they obtained judgments of $50 million and penalties of $11.2 million.

It also addresses the long-pending proposed rules, stating that it expects to have them out this year. As we all know, that is a huge project and will have a big impact on the industry. 

Judge Denies Class Certification Over Plaintiff’s Adequacy Issues

A District Court judge in New York has granted a defendant’s motion to deny class certification in a Fair Debt Collection Practices Act case after questioning the plaintiff’s attorney’s pattern of abandoning cases and just how involved the named plaintiff was in the suit in the first place. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER: There are many defensive strategies that may or may not defeat class certification, often times depending on the unique circumstances. Russell v. Forster & Garbus reminds us to always investigate all the circumstances of a case and how the plaintiff came to bring the lawsuit  to find circumstances that might persuade the judge that the case, the attorneys, and/or the plaintiff(s) are not worthy of representing the class. The case also reminds us that a defendant can bring a motion to deny class certification.

Class actions are intended to protect the little people, the downtrodden, who do not have significant damages but deserve to be treated as the law demands. They are often times particularly suited to consumer protection claims. And because they are meant to protect the people who will not or cannot present their claims to the court in person, the judge and the plaintiff’s attorneys and the plaintiff all have duties to protect the class members who are not present. These fiduciary duties ensure that there are checks and balances against class representatives and their attorneys to ensure that the class members’ interests are protected. And when the plaintiff or the attorneys do not take their fiduciary roles to heart, judges end up denying class certification, which is what happened in Russell.

Mitchell Pashkin was Russell’s attorney, and  alleged in the FDCPA lawsuit that the collection attorney failed to provide notice of assignments to demonstrate the complete chain of title. The lawsuit also included boilerplate claims of a lack of meaningful attorney involvement, and that the state lawsuit was false and misleading, and unfair and unconscionable.  Nineteen months after Russell filed his lawsuit, he was deposed and testified that (1) his wife hired the attorney, (2) his wife told him to speak to the attorney because of certain letters which he had not received, (3) Russell spoke to the attorney for the first time two months before the deposition, (4) Russell first saw the complaint at his deposition, (5) Russell did not know why he had named the collection attorneys, (6) Russell understood the lawsuit was about the sale of his name, (7) Russell did not know what he wanted the court to do in his lawsuit; (8) Russel did not remember whether he had ever seen the state court collection action; and that Russell did not know whether he owed the debt or whether he had received collection letters from the collection attorneys. Russell also testified that he did not know his responsibilities as a class representative nor did he know the class he was purporting to represent. Russell’s wife was also deposed, and she testified that (1) she and her husband were the class representative, and then clarified that she was speaking on behalf of her husband really she believed; (2) she was not necessarily “running” the action, but that she handles all the couple’s business affairs; (3)  the wife was a go-between between counsel and her husband; and (4) after the FDCPA lawsuit was filed in 2017, neither the plaintiff spoke to their counsel at any time throughout 2018, and (5) that neither of them had received any documents related to the FDCPA action.

Based on the deposition testimony, Defendants argued that the plaintiff knew so little about the case that “he would be unwilling to protect the interest of the class against the competing interest of this attorney.” The Court agreed, finding that the plaintiff had “virtually no familiarity with [the] action and no understanding of his role as a class representative” and was not an adequate class representative. 

The Court also found that the plaintiff’s counsel was inadequate, in part based on the deposition testimony about his failure to keep his client informed and his failure to inform the client of his responsibilities as a class representative. Additionally, the Court noted its familiarity with counsel, and several cases in which courts had dismissed the counsel’s cases for failure to prosecute. The Court noted counsel had failed to obey numerous court orders, and in one case, counsel failed to respond to 90% of emails, had his phone disconnected, and failed to respond to voice mail messages. 

Having a court deny class certification based on the inadequacy of the class representative or class counsel is difficult. There are many cases that explain that the bar on the adequacy requirement for class certification can be low. Nonetheless, the Russell case stands as a shining example of the need to explore these issues in discovery and through depositions. And when a court denies class certification because counsel is not adequate, the decision itself can provide a roadmap for discovery to find a basis to  deny class certification in other cases with the same counsel and can be used as outright evidence to base denial of class certification in other cases with the same counsel. Kudos to defense counsel and their clients for an excellent case showing us all issues we should explore when defending a putative class action brought by Mitchell Pashkin, and potentially other plaintiff attorneys.

I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics.  And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.


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