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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.
Judge Hears Arguments in ACA Case in Mass.; Answer Coming Soon on TRO Request
A federal judge in Massachusetts has set a deadline of this afternoon for the parties in a lawsuit challenging the Attorney General’s enactment of emergency regulations governing the collection industry to submit their materials, and said he would likely have an answer soon on a request for a temporary restraining order that seeks to block the regulations from being enforced until the lawsuit is resolved. More details here.
Mass. AG Defends Regulation in Advance of Hearing Today
In advance of a hearing today to determine whether a judge will grant a request for a temporary restraining order undoing regulation put into place by the Attorney General of Massachusetts, the AG defended her action in a court brief, painting the industry with a very negative brush. More details here.
Judge Grants TRO for ACA in Suit Against Massachusetts AG
A District Court judge in Massachusetts has granted a request from ACA International for a temporary restraining order, enjoining the attorney general of that state from enacting emergency regulations that barred collectors from, among other things, being able to initiate phone conversations with individuals who have unpaid debts. More details here.
WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY AND SHUSTER: Regulators need to be reminded that the First Amendment applies to commercial speech. Their focus solely on what they think is best for consumers almost always ignores constitutional protections. Defending against a regulator lawsuit on First Amendment grounds typically is so costly that targets end up negotiating limitations on their free speech rights. This case will be a great reminder for regulators to be sure and balance their demands, whether it be in regulations or negotiations, and work through the balance of important constitutional rights.
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Consumers File Record Number of Complaints With CFPB in April
One of the great unknowns about the coronavirus pandemic has been wondering what impact it would have on the credit and collection industry. We have seen a lot of the fallout, in terms of states that have enacted emergency regulations that have impacted operations and companies that have been forced to close or lay off portions of their workforces. But the industry has also ben looking at consumers and wondering how they would handle the crisis. Well, thanks to data from the Consumer Financial Protection Bureau, some of that picture is now coming into focus. More details here.
WHAT THIS MEANS, FROM PORTER HEATH MORGAN OF MALONE FROST MARTIN: The increase in number of complaints in April is not a surprise for many reasons, almost all related to COVID-19 and the state and federal regulatory closures. With those closures, came business closures and a spike in unemployment as companies laid off or furloughed their employees. With that, we saw higher default rates and a higher volume of accounts that fell to default status or into collections. Along with the heightened consumer anxiety from the pandemic, it not surprising that consumers went online to find a way to complaint or express their frustrations or that anxiety with their circumstances.
The good news is this: the incidents of positive feedback and consumer compliments also increased in April. Significantly. I have worked and talked with many agencies over the last month who have seen a drastic increase in positive feedback, and have heard amazing stories of consumers who are thankful for the help provided to them by collection agents.
Roger Weiss, president of ACA International, set out a vision for our industry during this pandemic, and stated that our industry a unique opportunity to reshape the image and perception for the better, for years to come, with how we treat consumers during this time. And I couldn’t agree more, and I am happy to see the results of that vision playing out in April.
We still need to be aware of the increase in consumer complaints, but we also need to be better at tracking our positive feedback. Tracking those incidents can help re-shape the image of our industry and can help with your clients and with state and federal regulators who may consider restrictions on collections.
Appeals Court Affirms Ruling for Defendant in TCPA Consent Case
The Eleventh Circuit Court of Appeals has upheld a ruling in favor of a defendant that was sued for violating the Telephone Consumer Protection Act because it contacted the plaintiff after she had revoked consent to be contacted, but the consent was part of a contract, which means it can not be revoked. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: For the second time this year, the Eleventh Circuit Court of Appeals has issued a well-reasoned, common sense opinion in a TCPA case. Earlier in the year the Court issued in Glasser v Hilton, a favorable ruling on what is an ATDS under the Act. In Medley v Dish Network, the Court affirmed summary judgment for Dish and, in doing so, reinforced contractual consent clauses.
The plaintiff in Medley entered into a contract with Dish and provided her cellphone number. The contract had a clause that said Dish could contact her on the cellphone using and ATDS and could leave pre-recorded messages. This is sometimes referred to as the “communications” clause in contracts. The facts in the case get a bit complicated due to a bankruptcy and various communications, but for our purposes the important part was that plaintiff tried to revoke the contract’s consent for her to be contacted by Dish. The trial and appellate courts both held that she can not unilaterally do so. She had a contract. The terms cannot be modified unless by agreement. There was no agreement. The Court applied contract principles commonly taught in the first year of law school, holding that the revocation was ineffective. In doing so, the Court agreed with the Second Circuit’s Reyes v Lincoln ruling, which is the only other Court of Appeals case on point.
This is a significant win for the defense of TCPA litigation. It also endorses the somewhat commonly used “communication” clauses in contracts. Importantly, it adds to the Reyes precedent. Let’s now hope no Circuit split develops.
Appeals Court Upholds MSJ for Plaintiff in Time-Barred Debt Case
The Court of Appeals for the Fifth Circuit has upheld a lower court’s summary judgment ruling in favor of a plaintiff who received collection letters attempting to collect on debt for which the statute of limitations had expired, a fact that was not mentioned in those letters. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: A growing threat facing agencies collecting time-barred debt are cases claiming collection letters violated the FDCPA because they offered to settle an out-of-statute debt without informing the consumer the statute of limitations expired, the consumer could not be sued, and a partial payment would revive the statute limitations (in states where that is true). An ever-growing list of federal appellate court opinions found violations of section 1692e of the FDCPA because the word settlement is construed as a threat of litigation and/or by including the word “settlement,” disclosures are required to avoid deceiving or misrepresenting the status of the debt to an unsophisticated consumer.
This was the general fact pattern in Manuel v. Merchants and Professional Bureau Inc. There the Fifth Circuit held not including the disclosures when using the term “settle” as well as describing the situation as “urgent” and the settlement as “a very special offer” could mislead consumers if the statute of limitation disclosures were not also added. Other cases are being filed regarding consumers looking at websites and filing suit based solely on the absence of these disclosures even when other phrases such as “settlement or “urgent” are not included. The Fifth Circuit did not address website cases specifically, but it did decline to address the issue of whether the disclosures are required an absence of other language. That’s unfortunate because, independent of whether the decision was industry-friendly, it would give clarity as to the need for these disclosures.
The takeaway from this case is that the statute of limitation disclosures should be provided. I advise all my clients to include the disclosures in all of letters or other communications that seek out-of-statute debt at any stage of collections (i.e., not just a validation notice). Until courts reach a consensus on whether these disclosures are required, collectors should provide them in all letters to avoid exposure. In addition, agencies need to figure out ways to include these disclosures on their website and/or payment portals so when consumers make an unsolicited review of their debts, those disclosures will be seen but only when the time-barred debt appears. This becomes complicated and requires customized notices, the expense and capacity of which depends on your collection software (e.g., modern platform or a legacy platform) and the ability to integrate with third-party providers to the extent consumers are accessing those companies’ websites.
The deck continues to be stacked against collectors of out-of-statute debt. This is another judicial opinion that should force collectors to carefully evaluate the overall profitability of these types of debts. This would include the percentage of the agency’s overall debt portfolio, the liquidation rate, and the other business the agency may believe it receives because it agrees to collect these debts (i.e., is out-of-statute debt a loss leader?). There increasing exposure to collecting these debts, and the expense of compliance steadily grows with operational and technological changes, training, and the potential need for an entirely new collection software platform that has the capacity to make the customize notices. Another important Factor is whether these disclosures will have a material impact on the revenue generated by these debts. In other words, is there a benefit of omitting these disclosures in the face of the real risk of not doing so?
In a way, Manuel was yet another case that supports an already popular judicial viewpoint that disclosures are required when a discussion of a settlement is included in letters seeking time-bar debt. The big picture, though, is the trend by courts wanting to see these disclosures and the likelihood courts will start to find violations even in the absence of other phrases in the letters like “settle.”
State AGs Appeal to Credit Bureaus to Comply With FCRA, CARES Act
After not getting the answer they were looking for from the Consumer Financial Protection Bureau, a group of two dozen state attorneys general are now going directly to the three major credit bureaus and letting them know that those states “are committed to protecting consumers in our states and will continue to enforce all federal and state requirements during this crisis.” More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: In an interesting turn of events, and after not getting the answer they wanted, In late April, a group of two dozen state attorneys general appealed directly to the CEOs of Experian, TransUnion, and Equifax, asking them to essentially disregard guidance issued by the Consumer Financial Protection Bureau (CFPB). In a letter written to the CEOs, the attorneys general asked them to follow the provisions laid out for credit reporting in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CFPB had previously provided guidance to furnishers that said they would not enforce a provision of the CARES Act which requires furnishers to report an obligation as current if the obligation was current prior to the grant of a CARES Act accommodation, and they were giving furnishers more time to investigate disputes because so many employees are working remotely.
While the CFPB has directed furnishers to follow certain procedures, this request by the state AGs is misplaced. What the AGs are asking the Big Three to do is step in the role of furnishes and change the way data is being reported. The editing of information is not something CRAs are accustomed to doing (or should be doing), but, moreover, as a result of the recent changes in law, there is an obvious conflict of law issue.
Judge Grants MSJ in TCPA Case Over Called Party
In a case that was first noted by TCPAWorld, a District Court judge in Florida has granted a defendant’s motion for summary judgment after it was sued for violating the Telephone Consumer Protection Act because the person the defendant was trying to reach had forwarded his phone calls to his cousin, while also essentially laying waste to all collection-related TCPA suits in The Sunshine State. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: The Court’s holding that PRA could not be held responsible under the TCPA when the consumer ported his calls to another person’s number is incredibly logical. Moreover, that portion of the decision is in line with the FCC’s reasoning when a person ports a landline to a cell phone, or vice-versa – there is no TCPA liability in those circumstances. With respect to the definition of “auto-dialer”, while this was a good win for the industry, challenging various auto-dialing technology will only be successful in certain jurisdictions as each Circuit, indeed in some cases district courts, have their definition of “auto-dialer.” Overall, this really just highlights the need for clarity with the TCPA.
While everyone continues to wait for the FCC to issue new rules or guidance, it is possible that the United States Supreme Court could take matters into its own hands and strike down the entire TCPA in the matter of Barr v. American Association of Political Consultants. After listening to oral arguments on May 6, some of the justices appeared to be thinking that striking down the entire TCPA may actually be on the table. We will have to wait and see.
Judge Grants MSJ For Defense in FDCPA Letter Case
A District Court judge in New Jersey has granted a defendant’s motion for summary judgment after it was sued for violating the Fair Debt Collection Practices Act because a collection letter allegedly inferred that a lawsuit was going to be filed against the plaintiff. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: For many of the claims asserted under the Fair Debt Collection Practices Act (15 U.S.C. §§ 1692-1692p), Courts must apply the “least sophisticated consumer” standard in evaluating the claim. When looking at this particular issue, it is good to reflect again on the Second Circuit case that I feel quotes the standard best. An application of the “least sophisticated consumer” standard requires “an objective analysis that seeks to protect the naïve from abusive practices, while simultaneously shielding debt collectors from liability for bizarre or idiosyncratic interpretations of debt collection letters.” (Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir. 2005) (quotations and citations omitted).)
The subject case arises from a letter sent by an attorney firm, which includes a disclaimer that they are not threatening legal actions is not a new set of facts, but what makes this case interesting is what the court referred to as a “new” argument. The Plaintiff’s counsel asked the court to look outside of the letter at issue and consider the claim as a result of the plaintiff’s state of mind due to previous events. In this case, the fact that the plaintiff was first contacted by a collection agency which followed with a letter from a law firm. The court described this as a “one-two punch.” The plaintiff asked the court to consider that even with the disclosures needed that explained this was not a threat to legal action, the fact that the collection process moved from the agency to the law firm could by itself indicate that legal action was in process.
The court reviewed the claim as a question of law and held, however, that this argument was a “broad jump” as the letter does not include any threats of legal action. This review standard is critical to note, as districts still vary in how the unsophisticated evaluation is conducted, as a question of law or a question of fact, the difference between the two standards being significant.
In 2019, the Supreme Court denied a petition (Huebner v. Midland Credit Mgmt., 139 S.Ct. 1282 (2019)) to rule on whether the review should be one of a question of fact or a question of law, and as a result, the standards will likely continue to vary amongst the Districts. If this defendant found itself in a district that reviewed the unsophisticated consumer standard as a question of fact, the review could not be settled in a motion for summary judgment. Instead, it would have required a trail which, in most cases, would be by Jury. All creditors need to take note as to what District standard will apply in each case that arises.
Appeals Court Affirms Ruling for Defense in FCRA Case
The Ninth Circuit Court of Appeals has upheld a lower court’s ruling that an employer does not violate the Fair Credit Reporting Act by providing a disclosure simultaneously with other documents and not using a standalone document for the authorization. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH VOLUCK: Rational reasoning strikes again! The Court of Appeals for the Ninth Circuit, usually very consumer-friendly, issued a unanimous opinion affirming the decision of the trial court in favor of the employer-defendant. The Fair Credit Reporting Act requires an employer to provide a clear and conspicuous disclosure in a document that solely consists of the disclosure should the employer wish to conduct a background check. The employer, here, provided a single page disclosure along with the multi-page application, which included the authorization at the end of the application. Plaintiff argued that the documents needed to be provided as a stand-alone document without the presentation of any other paper. The Ninth Circuit rejected this impractical approach. As long as the disclosure was by itself, the signature on the authorization could appear on the application, and, more importantly, the employer could present all of these documents to the prospective employee at the same time.
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.