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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.
Ninth Circuit Upholds Ruling Against Defendant in TCPA ‘Called Party’ Case
The Ninth Circuit Court of Appeals has upheld a lower court’s verdict against a company accused of violating the Telephone Consumer Protection Act because the phone number it was calling had been reassigned to someone other than the intended recipient of the calls, ruling that the company must have the consent of the phone’s subscriber in order to be able to call that number. Separately, the court also upheld a lower court’s ruling granting the award of attorney’s fees to the plaintiff. More details here.
WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER: This case exemplifies everything or almost everything that is wrong with the TCPA. The TCPA creates a wild west frontier where the exposure is monumental; the requirements and obligations can be draconian, especially when vicarious liability is involved; and if you stand to make the good fight, you may be funding your adversary for years to come. This is one of those cases. The creditor retained various collection agencies, who used an autodialer (and I’m sure it is a predictive dialer) to call the creditor’s debtor, who had consented to calls. But two years after giving consent, the creditor’s debtor changed his phone number. And the phone number was re-assigned to a woman who gave the phone to her son. And of course, the debtor fell behind in his payments, and never told the creditor his phone number had changed. Three different collection agencies called the son 189 times according to the jury verdict. The one bright spot in this tale is that the son claimed to ask for the calls to stop (which the creditor argued was ambiguous), the collector failed to note the request to cease calls in the account notes, and those circumstances seemed to be negligent in the Court’s view, rather than willful, barring treble damages. The Court also noted that the jury had found for the creditor on the negligence based invasion of privacy claim, supporting the Court’s decision not to treble statutory damages. For those of you without a calculator, that is $94,500, instead of $283,500. On appeal, the creditor asked the Ninth Circuit to decide the issue of whether TCPA liability exists if the caller intended to call someone who had consented to the call. The Seventh and Eleventh Circuits had already rejected this argument, and the D.C. and Third Circuits had voiced support for the Seventh and Eleventh Circuit’s position. The Ninth Circuit relied upon the express statutory language, exempting from liability calls made with the “prior express consent of the called party.” As the Ninth Circuit points out, there is no reference in the TCPA to an “intended” recipient. And legislative materials and the FCC’s orders that have suggested a safe harbor only further support the idea that the statute establishes liability as to calls placed regardless of whether the call was intended for the right person, but reached the wrong person. So the creditor is unlucky to be in front of the Ninth Circuit with its Marks decision that predictive dialers are autodialers covered under the TCPA and this decision foreclosing the intended recipient defense. It does appear that the creditor is going to try to be heard at the U.S. Supreme Court, and maybe, the U.S. Supreme Court can take a look at the autodialer issue and the intended recipient issue. The Ninth Circuit panel that heard this case noted “forceful” decisions disagreeing with Marks in the Seventh and Eleventh Circuits, and that the Second Circuit has followed Marks. This Ninth Circuit may have ruled differently on the autodialer issue if not for the precedential Marks decision, recognizing that the autodialer issue is a difficult one. And maybe these comments about a split in the circuits will give a boost to the U.S. Supreme Court reviewing this case. I will cross my fingers.
But meanwhile, what is a law abiding creditor (or collection professional) to do? The creditor had consent. The son (child) received multiple calls a day, which has bad optics. I routinely suggest that collection professionals make a thoughtful decision about the frequency of calls guided by the purpose behind that frequency. There was an alleged call where the son asked for calls to stop. And there was no notice by the debtor that his phone number had changed. Also, the creditor is being held vicariously liable for the calls made by others. A 2008 FCC order (23 F.C.C. Rcd. 559, 565 (2008)) states that creditors can be held liable for calls made on their behalf, without reference to the time honored, black-letter law requiring knowledge or control over the conduct to impose vicarious liability. There are some steps that might curb liability for the creditor. A contract provision with the debtor requiring updating contact information perhaps? Confirmation of the phone number and consent during every call with the debtor? (The calls stopped after the debtor resolved the debt, which raises a question as to whether such confirmation could have been obtained.) Programming predictive dialers to have the agent listen to any outgoing message recording to update when the message says – leave a message for X and you are collecting from Y. But in the end, there is no fast, quick answer. And when that is the case, we look for ways to minimize risk. Maybe reduce the number of autodialer calls. Maybe intersperse hand dialed calls to confirm what the voice mail message says? Maybe think about adjusting the frequency of calls? Maybe confirming contracts have indemnity provisions?
And while the TCPA does not have an attorneys’ fee provision, the California Rosenthal Fair Debt Collection Practices Act does (as does the federal Fair Debt Collection Practices Act). Here, attorneys’ fees and costs awarded were approximately $170,000. The high profile cases where large dollar figures are awarded fund the war chest to prosecute these actions against others. The TCPA is a dangerous statute and there is little upside for the industry. But we continue to hope that somewhere down the line, the FCC or the legislature will understand that the TCPA was meant to avoid nuisance calls from businesses you did not have a relationship with, not to stop calls attempting to contact a debtor. I continue to hope that the FCC issues a new order that favorably addresses predictive dialers and makes some common sense rules on how to deal with re-assigned numbers. There was some talk at one point for a re-assigned database. Perhaps that will happen. And maybe this case or one of the others in the pipeline will be the one that the U.S. Supreme Court reviews to issue a favorable ruling on predictive dialers. Until then, we are left to wonder what is a law abiding creditor to do?
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State Regulators Call Out CFPB Over Task Force’s Agenda
State regulators have “significant concerns” about a Consumer Financial Protection Bureau task force that is charged with looking at federal consumer protection laws, wondering why they are being left out of the discussion and worried that their state laws are possibly going to be pre-empted. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: State regulators sent the Consumer Financial Protection Bureau (CFPB) a letter this week, expressing concerns about a CFPB taskforce charged with looking at federal consumer protection laws. The state regulators questioned whether the task force will be able to objectively assess and make informed recommendations, especially in light of the coronavirus pandemic. The regulators also inferred that the CFPB is looking to preempt state consumer protection laws and reminded the CFPB that states are a critical partner in enforcing federal consumer protection laws, noting, however that former state regulators are not represented on the taskforce.
State regulators and the CFPB seem to regularly tussle over concerns relating to jurisdiction and maintaining boundaries. While many would expect COVID-19 to slow down regulatory oversight, if anything, government agencies and bodies have taken a sharper eye to areas of major concern, namely, consumer protection. What this tells companies, though, is that now is the time to focus on compliance. If the 2008 recession is any indicator, litigation could flood in as a result of missteps made during this unprecedented time.
Appeals Court Affirms Lower Court’s Cost Award in FDCPA Case
This is one of those cases where I need to remind everyone from the outset that I am not an attorney, but the ruling seems so interesting, at least to me, that I wanted to bring your attention to it and try to pretend to be a lawyer for a few minutes. At any rate … The Seventh Circuit Court of Appeals has upheld a lower court’s ruling that the plaintiff in a Fair Debt Collection Practices Act lawsuit is not entitled to $25,000 in costs because he “requested costs not contemplated by the federal rules and relevant statue.” More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Words have meaning. Some words have special meaning. In this FDCPA case, rather than litigate, the involved Agency decided to make an offer of judgment of $1,101.00 “plus costs to be determined by the Court.” Plaintiff accepted. Then the fun began. Plaintiff thereafter sought in excess of $25,000 of supposed costs. The “costs” sought actually were alleged damages Plaintiff thought he was entitled to under the FDCPA. The District Court was having none of it essentially nullified Plaintiff’s acceptance of the offer concluding there was “no meeting of the minds.”
Plaintiff was outraged and basically told the court it could not nullify his acceptance. So the court reinstated the acceptance and told Plaintiff to submit his claimed taxable costs under Fed. R. Civ. P. 54. Plaintiff again sought “damages” he believed he incurred but called them “costs.” The district court scoffed and awarded none. Plaintiff appealed and curiously then told the Court of Appeals it did not have appellate jurisdiction because the district court had not awarded him what he wanted and refused to tell him why. The Court of Appeals scoffed as well and affirmed. The Court of Appeals concluded the term “costs” as used in the FDCPA means Fed. R. Civ. P. 54 taxable costs. Plaintiff sought none, so his case was over, no doubt much to his chagrin.
N.M. Supreme Court Issues Freeze on New Judgments, Garnishments
The New Mexico Supreme Court on Friday announced in an order that it is indefinitely suspending the issuance of new writs of garnishment and writs of execution in response to protecting individuals during the coronavirus pandemic. More details here.
WHAT THIS MEANS, FROM PORTER HEATH MORGAN OF MALONE FROST MARTIN: The past three months have seen collection come to a halt with courthouse closures, client restrictions on lawsuits and garnishments, and certain types of debt being prohibited by federal and state orders.
Just when collection agencies and law firms thought they were out of the woods with the easing of those restrictions and reopening courts post COVID-19, we are now entering a Phase 2 of collection litigation restrictions with the New Mexico Supreme Court’s order the latest attempt.
Members of the industry did not participate in this decision, and as a result, this order is broad and sweeping, and aimed specifically at “consumer debt collection cases.” Perhaps what is most concerning, is that it is to remain in effect indefinitely. I would expect a legal challenge to this similar to ACA International’s challenge of the Massachusetts order in May.
In the meantime, the industry should keep their tents out because we aren’t out of the woods yet with restrictions on collection litigation.
Bill Introduced in Colorado To Prohibit Garnishments For Up To 360 Days
The Colorado state legislature yesterday introduced a series of bills aimed at helping individuals in that state get through the coronavirus pandemic, including a bill that would establish a 180-day moratorium on what the bill defines as “extraordinary debt collection actions.” More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: Same type of bill (limiting debt collection actions – in this garnishments), different jurisdictions. Colorado’s bill goes farther though; while it includes a prohibition on garnishments for almost a full year (if extended by the regulator), there are also permanent portions of the bill which will pose even greater long-term hurdles for debt collectors seeking to collect from Colorado residents. For example, the bill seeks to amend statutory exemptions adding a new exemption for $7,000 in a depository account, changing the wage garnishment percentage from 20% to 10%, and increasing the exemptions from 40 times the state minimum wage to 80 times the state minimum wage. It is estimated that these changes will eliminate 99% of all bank levies and eliminate wage garnishments for people who make less than $67,000 annually. This bill comes on the heels of changes to wage garnishments made last session that decreased the garnishment percentage and increased the exemptions. It is clear that it is not just the moratorium on garnishments that could be harmful to the industry, but last effects related to the proposed changes for exemption. The good news is that the Colorado State Creditors Bar is aware of the bill and working diligently to oppose it.
Judge Grants MTD in FDCPA Case Over Balance Discrepancy
A note to plaintiffs everywhere — if you are going to sue a collection agency for violating the Fair Debt Collection Practices Act because a collection letter does not identify the original creditor properly, do not indicate that the debt is being disputed because the care you received was “inadequate.” More details here.
WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: This is a great example of a plaintiff attempting to expand the FDCPA beyond the language and purpose of the statute. First, the mere fact that the creditor name was not the “legal” or “common name” did not affect the plaintiff’s ability to understand who the debt was currently owed to. The key in any disclosure is providing sufficient information to identify the current creditor. Here, the plaintiff clearly knew who the creditor was and what debt was being sought, as the reason behind plaintiff’s dispute was not that plaintiff did not incur the debt, but rather that because of inadequate care she should not have to pay the debt. If she did not know who the creditor was, she would not have contested the level of care. Second, the court held that where a letter is sent to an attorney and there is no allegation that the plaintiff even read it, the plaintiff does not have standing to challenge the letter. This is not to say that a plaintiff will never had standing when a letter is sent to an attorney, but under these facts, because there is no indication that the plaintiff ever saw the letter and because the letter was sent to the attorney and not the consumer itself, plaintiff lacked standing. This is an important fact pattern to keep in mind for situations where the collection letter was directed at an attorney not at the consumer directly.
CFPB Takes Action Against Title Lender For Overcharging Customers and Unfair Collection Tactics
The Consumer Financial Protection Bureau yesterday announced an enforcement action against an auto loan title lender for, among other infractions, engaging in unfair collection tactics, which will see the lender repay $2 million back to individuals who were victimized and a civil money penalty of $1. More details here.
WHAT THIS MEANS, FROM SHANNON MILLER OF MAURICE WUTSCHER: Earlier this month, the Bureau of Consumer Financial Protection (CFPB) announced that after a review of the lending practices of payday and installment-loan lender Main Street Personal Finance, Inc. (Main Street); ACAC, Inc. (ACAC), which conducts business under the name Approved Cash Advance, and Quik Lend, Inc. (Quik Lend) (collectively, Respondents) it had identified violations of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531, 5536(a)(1)(B), the Truth in Lending Act, 15 U.S.C. §§ 1601–1666j (TILA), and TILA’s implementing regulation, Regulation Z, 12 C.F.R. Pt. 1026 (Reg Z). In resolution of the investigation, the CFPB and Respondents entered into a Consent Decree which will result in Respondents paying $3,540,517.10 (with the potential to be reduced to $2 million), representing the total title finance charges made directly or indirectly by consumers to Respondents that exceeded the amount of the finance charges stated in the required TILA disclosure box.
While the Consent Decree reflects that Respondents are not admitting or denying any of the findings of fact or conclusions of law outlined in the CFPB’s investigation, the CFPB’s inquiry revealed that Respondents were engaging in several areas of misconduct and in violation of the CFPA, TILA and Reg Z. Specifically, in relation to auto-title loans, Respondents were providing misleading disclosures which disclosed the finance charges, pursuant to TILA, based on a single payment transaction with a 30-day maturity date. However, Respondents also provided consumers with a separate document entitled the “Amortization Schedule”, with the total of payments disclosed under TILA being substantially less than the amount consumers would actually and ultimately pay if they paid according to the 10-month Amortization Schedule. This resulted in consumers likely paying a significantly higher finance charge than that which appeared in the TILA disclosure section of the loan agreement.
Additionally, Respondents were found to have been routinely calling consumers at their places of work as well as third party contacts for the consumers in attempts to collect defaulted loans and in some instances disclosing to third parties the existence of the consumer’s debt. These calls were encouraged by collection managers, who went as far as to provide written warnings to collectors who were not attempting such contacts, even after a consumer’s request for such contacts to cease and even after Respondents had good contact information to reach the consumer directly.
The take away for the industry is that just because you may be providing the required disclosures, as always, a consumer’s ability to fully understand and comprehend the nature and terms of a financial transaction is the primary consideration. Here, although Respondents were providing the consumers with a breakdown of what the actual finance charge would be, should the loan not be paid within 30 days, it was misleading where the actual loan document’s required TILA disclosure was inconsistent and reflected a significantly lower charge. Additionally, the Consent Decree reflects the CFPB’s concern over the protection of a consumer’s private and sensitive financial affairs, as well as conduct which is reflective of an intent to harass and coerce consumers into making payments. Here, not only did the Respondents wholly lack any written policy regarding communications with third party contacts for a consumer, or limit the frequency with which collectors could contact to a consumer at places of work, but Respondents seemed to not only encourage these calls but actively punish collectors who didn’t place third party and work place calls enough. Clearly, this was a practice that the CFPB found to be highly susceptible to abuse and risked disclosing the delinquency of consumers’ debts to third parties as well as resulting in significant harassment of consumers.
Former Patients Sue Healthcare Facility Over Collection Practices
A group of five plaintiffs have filed a class-action lawsuit against the Kentucky Department of Revenue and UK Healthcare, alleging the debt collection practices used by the defendants violate the patients’ right to due process. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Most readers of this newsletter are aware that there are thousands of lawsuits filed yearly that challenge collection practices. Almost always, the defendants in those lawsuits are private business or individuals that qualify as “debt collectors” under state and/or federal laws. Alexander et al v. Miller et al presents a unique scenario in that the defendants whose collection conduct is being challenged are four representatives of Kentucky governmental entities.
The Kentucky Equal Justice Center and the National Center for Law and Economic Justice represent five people who claim that the Kentucky Department of Revenue and the University of Kentucky healthcare system, amongst others, violate due process rights under the Fourteenth Amendment because of how they collect debts. The main challenges address how the Department of Revenue can garnish wages and seize assets without filing a lawsuit. They also complain about the lack of notice to the patient-debtors of the conduct, which in turn prevents them from disputing the debts. They further complain about the 25% fee plus interest that gets added to these debts. All of the plaintiffs were subject to some form of debt collection conduct that they claim is unfair, while only one of the five actually had monies “taken” by the state.
The case was filed on June 4. We’ll have to follow this to see how it ends.
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.