Compliance Digest – June 8

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, email John H. Bedard, Jr., or call (678) 253-1871.

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.

Judge Grants Motion for Defendant in FDCPA Case Over Lack of Time-Barred Disclosure

A District Court judge in New York 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 attempted to collect on a time-barred debt without making the proper disclosures in a statement letter. More details here.

Nicole Strickler

WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: Solis v. Commonwealth Financial System, Inc., and Pendrick Capital Partners is a nice reminder that not every letter from a collector is an “attempt to collect a debt” under the FDCPA. In Solis, the plaintiff sued after receiving a statement of a debt sent after the Plaintiff’s request. According to the Plaintiff, the letter failed to advise that the debt was time-barred. District Court Judge Sandra Feuerstein applied the four-part test articulated by the Second Circuit, in Hart v. FCI Lender Servs., Inc. to determine whether a letter qualifies as an attempt to collect on a debt: (1) it references the plaintiff’s particular debt; (2) it directs him/her to mail payments to defendant at a specified address; (3) it refers to the FDCPA by name; and (4) “most importantly,” the letter “emphatically announce[s] itself as an attempt at debt collection” by stating “THIS IS AN ATTEMPT TO COLLECT UPON A DEBT, AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE.” After finding that “no language that the least sophisticated consumer could plausibly interpret as a settlement offer, demand for payment, or a threat of litigation”, the Judge granted the defendant’s motion for judgment on the pleadings, finding that the letter it had sent to the plaintiff-debtor did not amount to an attempt to collect a debt and therefore, the omission of time-barred debt disclosures from the letter did not constitute a violation of the Fair Debt Collection Practices Act. 


OCC Issues Final ‘Valid When Made’ Rule to Address Madden Fix

The Office of the Comptroller of the Currency — which regulates national banks — on Friday issued a final rule that clarifies a key component of the debt buying transaction, a concept known as the “valid when made” doctrine, which ensures the terms of loans remain valid after they are sold or transferred. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH VOLUCK: The “valid when made” doctrine had been a fundamental premise of banking law for close to two centuries when the United States Court of Appeals for the Second Circuit inexplicably ignored it in its 2015 ruling in Madden v. Midland Credit. Under the doctrine, a loan that is valid when it is issued cannot later be determined to be invalid when purchased by a nonbank on the secondary market. The doctrine traditionally applied to state usury law. The premise is that the National Bank Act pre-empted state law thus permitting national banks to collect interest throughout the nation without regard to the various interest rate caps established by each state. A subsequent purchaser of the paper was given the same legal right to collect the interest as the national bank.  That is until Madden.

The OCC final rule seeks to fix the mess created by the Second Circuit. This rule is a welcome development for the ARM industry. Not only will it assist in uniformly applying the “valid when made” doctrine throughout the United States, it will also put an end to Second Circuit FDCPA liability for collectors and debt buyers who pursue collection of “usurious” interest. The codification of the “valid when made” doctrine may similarly become a useful tool as defense attorneys seek to expand its application from usury to other areas.

Debt Collection Bill in Massachusetts Moving Forward

Legislation in the Massachusetts legislature is progressing which would shorten the statute of limitations by two years, halve the post-judgment interest rate, and exempt more individuals from having their assets garnished, according to a lengthy published report. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: I’m assuming everyone now realizes that Massachusetts has declared war on debt collection. The proposals in this legislation don’t just set a new high bar, they surpass that high bar in leaps and bounds. Of most concern should be interest by other Democratically controlled states to introduce copycat legislation. Sadly, there seems to be no discussion of the impact of these draconian measures on the availability of credit for those debtors most helped by this bill.

Judge Grants MTD in FDCPA ‘Current Balance’ Case

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 by referencing the “current balance” in a collection letter. More details here.

WHAT THIS MEANS, FROM XERXES MARTIN OF MALONE FROST MARTIN: Dicristo is another good decision for the industry, and future decisions will hopefully trend in the same direction. Lately, a lot of claims have been centering around current balance, itemization of amounts, effects of charge off, and safe harbor interest or balance change language. Various cases are pending in the Seventh Circuit on these issues and I would expect rulings on majority of these cases later this year. In a case we are handling, Degroot v. Client Services, Inc., Case 20-1089, ACA International and the Consumer Financial Protection Bureau filed amicus briefs backing our position that having an itemization of the debt and stating $0.00 for interest does not mislead a debtor to think interest may be added in the future. A sentence from the CFPB’s brief I really liked was “[b]ut an itemization of a debt—just like an itemized receipt from a store—records what has already happened, not what will or may happen in the future.” This goes hand in hand with Dicristo. We will see how these cases play out in the near future.

Judge Denies MTD in FDCPA Case Over Letter Sent Five Years Ago

A District Court judge in New Jersey has denied a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act even though the suit was filed more than four years after the letter that is the source of the complaint was sent to the plaintiff. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: In Williams-Hopkins v Allied Interstate the Plaintiff filed suit on Nov. 26, 2019 based on a letter received on or around 2015. Clearly beyond the FDCPA’s one year statute of limitations. Allied moved to dismiss claiming that the complaint was filed out of time. The issue with the letter is the debt it sought to collect was beyond the SOL for the debt and the plaintiff argued that the letter did not make that clear and misled Williams-Hopkins (“W-H”) to believe that “she had a legal obligation to pay the [expired] Debt,” and “overshadowed the mandatory disclosure requirements of the FDCPA regarding the plaintiff’s right to dispute the debt” by “repeatedly invit[ing] Plaintiff to pay.” 

The plaintiff claimed that the cause of action was tolled under the “American Pipe” doctrine (US Supreme Court 1974) by the filing of a prior class action entitled Tatis v Allied Interstate, LLC filed on Jan. 8, 2016 and settled individually on May 28, 2019 prior to any resolution of class certification. If W-H’s cause of action was tolled by the pendency of the Tatis matter, then it would have been deemed timely filed on Nov.26, 2019.

American Pipe stands for the proposition that the filing of a class action tolls the statute of limitations for all parties that could fall within the class. The tolling effect ceases when class certification is denied or a party that could have been a member of the class ceases to be. Examples being a potential class member objects to the class treatment and withdraws from the class. Allied argued that W-H would not have been in the Tatis class, and even if she was, her specific claim of overshadowing was not made in Tatis.

The class consisted of all parties with a New Jersey address from Jan. 8, 2015 that Allied sent one or more letter(s) in the same or similar form as the letters attached to this complaint, in an attempt to collect an obligation allegedly owed to LVNV Funding, LLC on which the applicable statute of limitations had expired prior to the date of the letter.

The Court noted that the letters attached to the Tatis complaint and the W-H letter were virtually identical except for one paragraph, that paragraph being a settlement offer contained within the W-H letter and not present in the Tatis letter. Allied argued that this evidenced the letters were different, but the Court disagreed and denied the motion to dismiss on that basis. Allied also argued that the Tatis complaint did not raise the issue of “overshadowing” and therefore W-H was not entitled to American Pipe tolling. The Court found that “where a subsequent, but different, claim shares a “common factual and legal nexus with those brought in the prior class action,” American Pipe tolling may apply, reasoning this is because defendants will have “‘the essential information necessary to determine both the subject matter and size of the prospective litigation.'” 

So some a practical suggestion is to carefully review class definitions for “same or similar” language in a class definition particularly when considering settlement of a class action. Is there wiggle room there and is that good or bad for the defense. Is your understanding and the plaintiffs’ counsel the “same or similar?” This will determine how large or small the class will end up being. Do you want the largest possible class or the smallest for the purposes of a class settlement. And if you are looking to settle on an individual basis, carefully defining the class prior to entering into that individual settlement may serve to lessen the number of potential remaining class members whose claims get tolled until the settlement is consummated. 

Judge Grants MSJ For Plaintiff in FDCPA Case Over Post-Judgment Interest

A District Court judge in Connecticut has granted summary judgment in favor of a plaintiff who filed a Fair Debt Collection Practices Act suit because a judgment holder applied the highest post-judgment interest rate allowed by state law, even though the order did not specify the interest rate that could be applied. More details here.

Dennis Barton

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: In Ceraldi v. Strumpf, et al., the judgment in a collection case stated that pre-judgment interest would be awarded pursuant to the statute, but it did not state the amount. The judgment-debtor sued claiming violation of the FDCPA when the judgment-creditor attempted to enforce the judgment at the state statutory rate of 10%. Connecticut law states that a judgment must specify a post-judgment interest rate for that interest-rate to be enforceable. Based upon that law, the district court ruled in favor of plaintiff. 

In one way, this is a very specific case addressing only how interest needs to be stated in a judgment in Connecticut. For example, under the same facts in Missouri, no violation would have occurred because the state statutory post-judgment interest rate (in collection cases) is implied when the judge does not specify an interest rate. I do, though, find two broader lessons we can take from this case. First, always be specific. In call, letters, texts, emails, and judgments, collector should always be specific about the amount they seek. When interested accrues on a debt, state the specific interest rate. 

The second broader lesson relates to the application of the bona fide error defense.  That defense is permitted when an unintended FDCPA violation occurred in spite of having procedures in place to prevent the error and those procedures were well-maintained (i.e., the procedures are actually used and are regularly updated).  While there can be exceptions, this defense is commonly applied to one-off clerical errors.  In 2010 (back when non-medical grade masks were more commonly used for Halloween and bank robberies), the US Supreme Court decided a mistake of law is not a bona fide error. In Ceraldi, defendants relied entirely on the bona fide error defense claiming they did not know the interest rate needed to be expressly identified in the judgment. That is a mistake of law, however, so the bona fide error defense was inapplicable and unsuccessful. Therefore, if your only defense is that you did not understand the law, either find another defense or settle the case.

Judge Dismisses FDCPA Class Action Over Alleged Legal Threat in Letter

A District Court judge in New York has granted a defendant’s motion to dismiss a class-action after it was sued for violating the Fair Debt Collection Practices Act by allegedly threatening that legal action was imminent if a payment was not made and because the alleged threat overshadowed the validation notice. More details here.

WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: In a class action lawsuit, the plaintiff asserted amongst other allegations, that the debt collector violated the FDCPA because “certain selectively read portions of the Legal Action Notice threaten plaintiff with immediate legal action.” Specifically, the plaintiff averred that the provision of a telephone number to call for additional information and an offer to help avoid legal action falsely implied to the least sophisticated consumer that legal action was imminent.

Granting the debt collector’s motion to dismiss, the court found that the plaintiff did not plausibly allege that the least sophisticated consumer reading the notice would read the entire letter as threatening immediate legal action. This decision highlights that it is unwise for consumers to select a sentence from a communication from a debt collector and argue that, when read in isolation, it would be confusing to the least sophisticated consumer. The least sophisticated consumer standard requires that the challenged communication must be confusing when read in its totality.

Iowa Set to Remove Moratorium on Debt Collection Activities That Had Been Prohibited

In yet another sign that states are easing their restrictions and beginning to re-open after having been closed for more than two months, the governor of Iowa announced yesterday that she will not extend a moratorium that had been in place on evictions, foreclosures, and certain debt collection activities. More details here.

Debt Deferral Program in N.C. Not Extended

It appears as though a debt deferral program that has been in place in North Carolina for the past two months expired on May 27 and was not renewed by the state’s Department of Insurance, thereby ending the program. More details here.

Nevada Extends Collection Agency-Related COVID-19 Protections

The state of Nevada’s Financial Institutions Division has extended its directive that prohibited collection agencies in the state from attempting to collect from Nevada residents for another 30 days, according to ACA International, which posted a copy of a letter the state sent to licensed entities alerting them to the extension. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: During the COVID-19 pandemic, many state officials and regulators in an attempt to decrease the economic burdens imposed on many, have placed restrictions on debt collection practices. These actions take measures behind those that were put in place by the CARES Act, which focused on the area of housing foreclosures and evictions. The good news for those in the debt collection industry, these restrictions are, in most cases, being removed. The most recent examples being Iowa and North Carolina, but the bad news is that some continue to be extended, such as those in place in Nevada, which is much more encompassing and restrictive.

In the states of Iowa and North Carolina, the orders only limited specific actions related to debt collection. In Iowa, the order limited actions such as garnishments and replevin actions, not collection actions as a whole (State of Iowa Executive Department, Proclamation of Disaster Emergency, March 9). In North Carolina, the order required that those regulated by the NC Department of insurance, including, but not limited to collection agencies, insurance companies, premium finance companies, are to provide a 30-day deferral on any premium or debt payments (North Carolina Department of Insurance, Commissioner’s Order and Bulletin 20-B-06, March 27, 2020). While again, the good news is that the states have chosen not to extend those orders, the impositions on collection agencies created by these orders were far less than those such as Nevada that continue to be in place.

Nevada’s order, recently extended to June 30 (State of Nevada Executive Department, Declaration of Emergency Directive 021 – Phase Two Reopening Plan, May 28), requires that all collection agencies who operate within the state to close, and mandates that out-of-state agencies “cease collection efforts with Nevada consumers/residents” altogether. For those that are affected by this order, there is some hope that the order can be overturned before the June 30 date if action is taken, such as the action taken by the ACA in Massachusetts. On May 6, a District Court Judge issued an injunction that prevents the Attorney General in the state of Massachusetts from enforcing the prohibitions on debt collection activity .

To conclude, while all know that the regulatory landscape that debt collectors must adhere to is always somewhat violate, it is even more so during this time of the COVID pandemic. Debt collectors need to continue to be on their A-game as it relates to their compliance and regulatory monitoring to avoid the potential of losses in the way of fines, fees and/or legal costs. It is always an uphill battle for many debt collectors to defend actions taken to collect payments. Imagine defending such actions, regardless if it was legal or not, taken during such a time where so many are facing economic depression.

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, email John H. Bedard, Jr., or call (678) 253-1871.

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