Compliance Digest – June 29

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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.

Appeals Court Overturns $500k Verdict in FCRA Case

The Court of Appeals for the Eleventh Circuit has overturned a ruling in favor of a plaintiff who sued a credit reporting agency for willfully violating the Fair Credit Reporting Act by not reinvestigating a dispute because the letter appeared to be suspicious. More details here.

Nicole Strickler

WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: Many of us in the credit and collection industry have been the subject of mail that appears to be, but is not actually from, a consumer. Often these communications come in the form of disputes, sent in mass, from strange origins or form envelopes. A recent decision from the Court of Appeals in the Eleventh Circuit warns, however, that these communications must not be simply disregarded. In Younger v. Experian, a plaintiff brought suit alleging that Experian violated its duty to reinvestigate a disputed debt listed on his credit report. Specifically, the plaintiff argued that Experian erroneously determined that Younger’s dispute letter was inauthentic pursuant to its “Suspicious Mail Policy,”. Under the “Suspicious Mail Policy,” Experian’s mail-sorters were to evaluate each piece of mail for certain listed characteristics that might suggest a letter was not actually sent by the consumer. If found to be “suspicious”, the mail the consumer was instructed to call Experian directly and the mail was disregarded. On appeal, Experian contended that its policy was within the bounds of its obligations under the FCRA as necessary to protect consumers from fraud. The Eleventh Circuit partially agreed, holding that Younger failed to provide sufficient evidence to establish that Experian recklessly disregarded its reinvestigation duty and reversing the award of punitive damages. However, it agreed with the plaintiff that Experian was negligent in failing to initiate a reinvestigation upon receipt of Younger’s letter. In view of Younger, credit reporting agencies (and others in the credit and collection world) should be cautious when shaping their policies surrounding disputes. Blanket policies, like the one employed by Experian in this case, create a significant risk that valid disputes will be ignored, resulting in potential liability.

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Appeals Court Rules ‘Validation Notification’ at Top of Letter Does Not Overshadow

Rendered unable to argue that she was confused about whether a debt dispute could be made in writing or over the phone thanks to a recent ruling, a plaintiff was also unsuccessful in claiming that the phrase “Validation Notification” at the top of the letter overshadowed her right to dispute the debt, the Court of Appeals for the Third Circuit has ruled. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: In a short n’ sweet opinion, the Third Circuit relied on its recent precedential ruling in Riccio v. Sentry Credit to reiterate that an invitation in the initial validation notice to call a debt collector does not violate 15 U.S.C. § 1692g. The attorneys representing James were same attorneys representing Riccio and they tried to pivot their argument based on the Riccio holding.  But the Third Circuit did not buy the new argument.  Although this is a win for the industry, the entire lawsuit could have been avoided by not including a heading in the initial validation notice. This opinion reinforces the fact that debt collectors should avoid adding any language beyond what is required by § 1692g.

Appeals Court Affirms Ruling in FDCPA Case Over Interest Added to Balance

The Court of Appeals for the Seventh Circuit has upheld a lower court’s ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act because it attempted to collect on interest that had been charged to the plaintiff’s account after the original creditor had given up on collecting the debt but before that debt was sold to the defendant. More details here.

Michael Klutho

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: This case touches on a number of recurring issues in FDCPA-land. First, the application of its Statute of Limitations (SOL). The 7th Circuit concluded that while two letters sent beyond the one-year SOL were time-barred, the last letter sent within the one-year period, was not. So the Court moved onto the merits.

The next thorny issue concerns the question of whether interest continues to accrue on a charged off credit card debt, once the creditor stops sending monthly statements post-charge off. Here, the 7th Circuit indicated that it’s an open question. The court addressed this issue as follows: 

“The Gomezes promised to pay interest, and Cavalry’s computer used the correct rate. The contract provided that the Bank’s inaction or silence would not waive any of its rights. The Bank’s failure to send monthly statements, coupled with 12 C.F.R. §1026.5(b)(2), might block the collection of interest for the months before the debt was sold—but perhaps the right way to enforce §1026.5(b)(2) is to impose administrative penalties rather than deem contractual interest to be forfeited. That was (and remains) a topic for litigation.”

So, the 7th Circuit in dicta said that issue remains to be decided. 

More importantly, the 7th Circuit ultimately concluded that it didn’t need to decide this issue to decide the outcome of this case as a matter of law. Instead, the Court concluded that the letter at issue which impliedly noted interest continued accruing, was not “’false’ just because , several years later, a judge disagrees with a legal argument supporting the debt collector’s calculation of how much is due.” The 7th Circuit ultimately affirmed the dismissal of the case in favor of the collector holding:

“A statement is false, or not, when made; there is no falsity by hindsight. All of the decisions in this circuit in which a letter was deemed to have falsely stated the amount of the debt dealt with errors known or readily knowable when the letter was sent.”

Top Senate Dem Unveils Privacy Bill

Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, yesterday released a draft of a privacy bill that would hold the chief executives and boards of directors of companies criminally and civilly liable should any provisions of the legislation be violated. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: On June 18, Sen. Sherrod Brown [D-OH] released the Data Accountability and Transparency Act of 2020 in discussion draft form. In general, the bill proposes to limit the collection, use, and sharing of personal data. Protecting an individual’s personal data has been a hot topic for some time, and appears to be a polarizing issue. One of the aspects of the bill that I found noteworthy was that it permits for a private right of action that has steep penalties. Under Section 401 of the bill, “any person may commence a civil action,” and any federal court would have jurisdiction to hear such a case. Liability would include: (a) an amount not less than $100 or more than $1,000, per violation per day, or actual damages, whichever is greater; (b) punitive damages; (c) reasonable attorney’s fees and costs; and (d) injunctive, declaratory and equitable relief. Also interesting is that the bill expressly provides that any violation of an individual’s privacy grants Article III standing. That provision of the bill is sure to be controversial because it appears to conflict with caselaw addressing Article III standing that has held that more is required than an actual violation of a statute. The statute of limitations is five years from the date of discovery of the alleged violation.

Many lawmakers have attempted to introduce bills regarding privacy law. Given that we are in an election year, it should be interesting to see how this one plays out.

Judge Grants MSJ For Defense in TCPA Class-Action Over Text Messages

A District Court judge in Indiana has granted a defendant’s motion for summary judgment in a Telephone Consumer Protection Act class action, ruling that even though the plaintiff continued to receive text messages from a debt collector after she had revoked consent to be contacted, the technology used by the defendant did not meet the definition of an automated telephone dialing system. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: The Lanteri v. Credit Protection Association decision illustrates how TCPA claims based on the alleged use of an ATDS are effectively dead in the water, in those Circuits (3rd, 7th, 11th) where the appellate courts have held that a device must use a “random or sequential number generator” to qualify as an ATDS. The Lanteri decision was issued by the U.S. District Court for the Southern District of Indiana, a Federal Court within the Seventh Circuit of Appeals and is duty bound to follow 7th Circuit law. Of course, the Seventh Circuit Court of Appeals held earlier this year that a “random and sequential number generator” is needed for a dialing system to deemed an ATDS under the TCPA, and that equipment which dials numbers from a stored list is insufficient. (Gadelhak v. AT&T Servs., Inc., 950 F.3d 458 (7th Cir. 2020).)

In Lanteri, the District Court certified, prior to Gadelhak, a TCPA class action based on text messages sent via equipment that did not use a “random and sequential number generator.” The District Court thereafter stayed the case pending the outcome of Gadelhak. And then, once Gadelhak was issued and the stay was vacated, the District Court predictably entered summary judgment in the defendant’s favor on the basis that no ATDS was used to send the text messages at issue. 

At the risk of stating the obvious: If you’re going to dial consumers via automated dialing equipment, do it in the 3rd, 7th or 11th Circuits. It is rare that automated calling equipment used today has random or sequential number generation capability. 

The ATDS issue is the subject of a petition pending before the Supreme Court in the Duguid v. Facebook matter, which the Supreme Court has not yet decided to hear. We are still in a “wait and see” position on that front. With so many Federal Circuit Courts of Appeal in conflict with each other as to the ATDS interpretation, how can the Supreme Court not take the bait on this one? The Supreme Court should agree to hear the Duguid petition because as things stand, the interpretation of a placement of a comma, and the state in which a TCPA lawsuit is filed, can make the difference between no liability and ruinous liability under the TCPA. This is wholly unfair to all. 

Stay tuned for the decision in Barr v. American Association of Political Consultants Inc. Will the Supreme Court strike the government debt exception? Will the entire TCPA still stand? 

Senator Takes Another Crack at Altering CFPB Leadership Structure

A bill has been introduced in the Senate that would change the leadership structure of the Consumer Financial Protection Bureau to a five-member commission from a single director, which comes as everyone awaits a ruling from the Supreme Court on whether the current structure of the Bureau is constitutional or not. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: It seems that Republicans are making an renewed effort at reforming the Bureau on their own terms and with a structure that, in their view, more closely aligns with that of other regulators in the consumer financial services industry (e.g., the Fed, the FCC, etc.). The pending legislation in both the House and Senate seeking to transform the Bureau into being led by a 5-member commission, as opposed to a single director, most likely was introduced in anticipation of the Supreme Court ruling that provision of the Dodd-Frank Act allowing the single director structure is unconstitutional. It also may reflect efforts to have a potential remedy for such a holding already “in the works” when the Court’s opinion comes down. It also could be an attempt to signal to the Court that there are legislative options available and the Court does not need to provide the remedy upon a finding of unconstitutionality – while the most likely route for the Court would be to refer the resolution of the Bureau’s structural issues to Congress, the Court could conceivably do otherwise.

Consumer Groups Sue CFPB Over Task Force Composition

A group of consumer advocates have filed a lawsuit against the Consumer Financial Protection Bureau, alleging it has “stacked” a taskforce with individuals who “uniformly represent industry views” and whose bias not only undermines its purpose but also violates the Federal Advisory Committee Act. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The recent filing of a lawsuit by a group of consumer advocates and a law professor against the CFPB regarding the formation of the Federal Consumer Financial Law Taskforce (“Taskforce”) is the epitome of “be careful what you wish for”. While the mission of the CFPB is noteworthy, “to protect consumers and to ensure that markets for financial products are fair, transparent, and competitive”, how that mission is achieved is in the eye of the beholder. The CFPB’s current single director structure means that the single director makes all the decisions. (It is worth noting that by the time of the publication of this article the Supreme Court will decide whether the single director structure is even constitutional). When consumer advocates had their champion at the helm, Richard Corday, the lack of industry perspective was perfectly OK. When I served on the Consumer Advisory Board (CAB), there were anywhere from four-to-five members who truly represented the industry out of a board of 28. While there may have been disagreements with the make-up of the CAB, Dodd Frank did not mandate what percentage of the board must be representative of industry. In fact, 12 USC 5494, which authorized the CAB, only states that the CAB must have experts in financial services. There is no requirement with regard to how that expertise is derived or from where.

The lawsuit alleges that by assembling the Taskforce the CFPB violated the Federal Advisory Committee Act (“FACA”) as well as the Administrative Procedures Act (“APA”). While the allegations focus on the make-up of the Taskforce and the omission of any consumer perspective, that alone, would not be a basis to argue FACA was violated because the statute says nothing about who should be on the task force or even the qualifications of taskforce members. However, the complaint makes some valid points as to whether the Taskforce has a required charter, that meetings were not held in public and that records reviewed by the Taskforce were not publicly disclosed as mandated by FACA.

Within the Bureau’s structure there is an office of Advisory Boards and Council so the issue will boil down to whether the requirements of FACA supersede Dodd-Frank mandates. Adding to the confusion, the Bureau modeled the Taskforce after the Consumer Credit Protection Act, which established a national commission to conduct original research and provide Congress with recommendations relating to the regulation of consumer credit. Whether the CFPB can proceed in this manner outside of the FACA or Dodd-Frank many also be a focal point in the litigation.

More disruption lies ahead.

Judge Denies Motion to Compel Because Terms Do Not Specifically Identify Name of Defendant

A District Court judge in Texas has denied a defendant’s motion to dismiss a complaint and compel arbitration because the terms of the agreement between the original creditor and the plaintiff did not specifically name the defendant, even thought it did say the agreement included “our controlled subsidiaries, assignees, and agents.” More details here.

WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: This is a tough decision. The defense was placed in a difficult spot. It had to argue that the debt collector, IC System, was an agent of the creditor, T-Mobile. The court drew a high hurdle for the debt collector to jump. To find an agency relationship, the creditor must have the right to control the details of how the debt collector acted. The “means and details” must be subject to control of the principal. The court went on to explain:

“An agent is one who consents to the control of another to conduct business or manage some affair for the other, who is the principal … An essential element of the principal-agent relationship is the alleged principal’s right to control the actions of the alleged agent. This right includes not only the right to assign tasks, but also the right to dictate the means and details of the process by which an agent will accomplish the task. Id. When one has the right to control the end sought to be accomplished, but not the means and details of how it should be accomplished, the person employed acts as an independent contractor and not as an agent.” (Emphasis added)

That is a high burden for a debt collector to prove. Many creditors don’t want the vicarious liability that comes with agency relationship. Often, creditors who are debt buyers insist on a written contract which defines the relationship as that of independent contractor.  

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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