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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 Upholds Dismissal of FDCPA Class Actions Over ‘Misleading’ Statements in Letter
As far as the Fair Debt Collection Practices Act is concerned, there is a huge difference between a collection letter that may be misleading and individuals who received that letter actually being misled, according to the Eleventh Circuit Court of Appeals, which yesterday upheld the dismissal of two suits. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: One of the things that frustrates all of us is when we get sued over something when, even if we technically violated the law, the plaintiff was not harmed. In the FCRA case of Spokeo v. Robins, the U.S. Supreme Court said a plaintiff does not have standing (i.e., the legal authority) to files suit unless (s)he alleged more than just a no harm no foul technical error by the defendant. As clear as this seems, some courts found a way to complicate Spokeo’s straightforward holding and allow cases to proceed even when no one was actually harmed. More frustrating is that these exceptions are inconsistently applied by different courts in different parts of the country. So every circuit court decision finding no standing furthers our efforts.
In Trichell v. Midland Credit Management, Inc., the Eleventh Circuit Court of Appeals added some clarity in our favor. There, plaintiffs filed suit claiming FDCPA violations relating to a failure to provide full and complete disclosures about the out-of-statute debts Midland was attempting to collect. The court ruled neither plaintiff had standing because they did not suffer harm arising from the alleged violations. First, the court held plaintiffs lack standing because they did not rely upon the alleged misrepresentations. The court then found plaintiffs lacked standing on the basis class members could have relied on misrepresentations even though the plaintiffs did not. Lastly, the court rejected the argument plaintiffs’ standing arose from them suffering an informational injury, which is an injury that arises from not being provided information to which the plaintiffs had a legal right. The Trichell court found a plaintiff must show more harm than not receiving a disclosure other courts have required. In fact, the Eleventh Circuit previously held a collector must provide out-of-statute disclosures, but that court did not address the issue of standing. Trichell suggested the previous case may have been decided differently had the defendant argue a lack of standing.
The takeaway from Trichell is that standing is likely a strong defense against the recent wave of FDCPA cases alleging violations for failing to make out-of-statute disclosures. That’s especially true in the string of cases where consumers are instructed by their attorneys to go to a payment portal to look only for the disclosures, not pay, and then file suit claiming a violation of the FDCPA because the website did not provide out-of-state debt disclosures. The Eleventh Circuit joins the Seventh and D.C. Circuits in holding you need more than an informational injury. Be cautious, though, because the Second and Sixth Circuits disagree. Commonsense sides with the Eleventh, Seventh, and D.C. Circuits, but what should be obvious to all is not always parallel to the law.
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Supreme Court To Hear Arguments in FTC Case Over Allowance of Fines in Consumer Protection Suits
The Supreme Court has agreed to hear arguments in a case that will determine whether the Federal Trade Commission is allowed to seek monetary restitution from individuals and companies accused of violating consumer protection laws. More details here.
WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: The Supreme Court of the United States (SCOTUS) granted the petition for a writ of certiorari and has consolidated cases (aggregating four separate lawsuits) for briefing and oral argument and is reflected on the docket as No. 19-508.
The issues to be considered by SCOTUS is whether Section 13(b) of the Federal Trade Commission Act authorized district courts to enter an injunction that orders the return of unlawfully obtained funds.
The petitioner in this case, the Federal Trade Commission (FTC) argues that the 7th Circuit Court of Appeals (7th Circuit) decision that section 13(b)’s permanent-injunction provision does not authorize monetary relief which conflict with the decisions of seven other courts of appeals. The FTC further argues that the return of illegally obtained funds to consumers as part of a permanent injunction is essential to the effective enforcement of the FTC Act and other laws enforced by the Commission. Respondents do not disagree with the FTC that the return of illegally obtained funds to consumers is essential to the effective enforcement of the FTC Act. However, the Respondent argues that the 7th Circuit correctly recognized that the plain meaning of the term “injunction” does not extend to an award of monetary judgment of a wrongdoer’s profits. The 7th Circuit reviewed and found that restitution is not an injunction.
Prior to the 7th Circuit ruling, the District Court granted summary judgment for the FTC and ordered the defendants to pay $5.3 million in restitution for violating consumer protection statutes and engaging in deceptive acts. The defendants allegedly engaged in marketing campaigns for free credit reports and scores which automatically enrolled consumers in monthly credit monitoring services without prior notification. Notification was sent after the enrollment was already complete.
State attorneys general from Illinois, Alaska, Colorado, Connecticut, Delaware, Hawaii, Idaho, Indiana, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, Oregon, South Dakota, Vermont, Virginia, Wisconsin, District of Columbia and the Commonwealth of Puerto Rico also filed an Amici Brief in support of the petitioner on the petition for writ of certiorari.
This case will have an impact, one way or the other, on the FTC’s ability to enforce monetary fines and penalties for violations of the FTC Act.
Judge Denies MTD in FDCPA Case Over ‘Non-Interest Charges’ Line Item in Letter
A District Court judge in New York has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by sending a letter that confused the plaintiff because it contained a line item in a table detailing the amount that was owed but did not offer an explanation of the source of the line item. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH VOLUCK: This is one of those cases where the agency’s conduct may be perfectly legal but the court system does not allow the agency defendant to provide its proofs at the Motion to Dismiss stage. At the MTD stage, the court has to take all of the allegations in the Complaint as true. Here, Judge Cogan, who has been fairly vocal against frivolous lawsuits, determined that without an explanation about the source of one of the categories of fees, the plaintiff has stated a possible case. Most likely, after limited discovery, the agency will prevail in a motion for summary judgment.
Judge Denies MTD in FDCPA Case Over Dispute Instructions in Letter
A District Court judge in Alabama has denied a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because it required the recipient of a collection letter to state the reasons why a debt was being disputed. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Common sense does not seem to apply in FDCPA land. In this case the Court denied the Agency’s motion to dismiss. The Agency’s challenged letter stated “The purpose of this notice is to give you an opportunity to respond to the described debt claim and make arrangements to either pay it or state your reasons why it may be incorrect.”
Of course Agencies would be in a much better position to respond to verification requests if they knew why the consumer disputed the debt (or any portion of it). But apparently asking the consumer why he disputes the debt is not allowed. So toss out common sense and just state the consumer can dispute (for good or bad reasons or just for sport). Don’t ask why or you’ll get sued and if in this Court, the case will proceed.
Navient Uses Seila Law Ruling As Grounds to Dismiss CFPB Suit
In what might be the first case to make the argument, Navient has asked a federal judge in Pennsylvania to grant its request for a motion for judgment on the pleadings in a lawsuit fled by the Consumer Financial Protection Bureau against the student loan servicing giant because of the Supreme Court’s decision that the leadership structure of the regulator is unconstitutional. More details here.
Supreme Court Ruling Won’t Stop CFPB From Pursuing Suit Against Navient
The Consumer Financial Protection Bureau’s lawsuit against Navient should be able to continue moving forward the agency argues, despite the Supreme Court’s ruling in the Seila Law case, filing a ratification from Director Kathleen Kraninger and announcing that it will oppose Navient’s motion for judgment on the pleadings. More details here.
Law Firm Fighting CFPB CID Uses Seila Law Ruling As Grounds to Deny Enforcement
A law firm fighting a civil investigative demand from The Consumer Financial Protection Bureau called the agency a “Frankenstein’s monster” following the Supreme Court’s ruling in the Seila Law case, arguing that a lawsuit filed by the agency should not be allowed to continue. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: Earlier this week we saw the first post-Seila Law motion filed by Navient asking the Court to dismiss the CFPB’s lawsuit against it. This was not unexpected. As a result of the Seila Law Supreme Court decision we knew that many of the currently pending CIDs or enforcement actions by the Bureau were going to be called into question. The big question left unanswered by the Supreme Court in Seila Law was the appropriate remedy regarding the CID – whether it was enforceable. Seila Law argued that the CID is unenforceable because the entire structure of the CFPB was unconstitutional. The United States argued that the CID is enforceable because the CID was ratified by an “Acting Director” who was removable at will by the President. I expect to see some similar motions made in other pending actions with the CFPB and there is no doubt that all eyes will now be on the 9th Circuit Court of Appeals as it has been tasked with answering that question.
The CFPB, in response to Seila Law, ratified its prior actions, but it is still unclear whether such ratification will be sufficient. Following Navient’s motion (to which the CFPB has already responded), two other enforcement lawsuits by the CFPB saw arguments based on the Seila Law decision. First, in CFPB v. RD Legal Funding, LLC, the CFPB advised the Second Circuit Court of Appeals that it should reverse and remand the district court’s dismissal of its case because Director Kraninger ratified the Bureau’s prior acts. For its part, RD Legal Funding vigorously responded and argued that the CFPB’s ratification of prior acts is invalid. The lower court had dismissed the CFPB’s action, finding that the CFPB’s structure was unconstitutional.
Second, in CFPB v. Law Offices of Crystal Moroney PC, the debt collection law firm responded to the Southern District of New York’s order to show cause by arguing that as a result of the Seila Law decision the Court must dismiss the CFPB’s enforcement action related to a second CID. Interestingly, it is possible that the latter case could wait to determine what the Second Circuit will decide regarding ratification since it will be bound by that decision.
Between the case pending before Second Circuit (RD Legal Funding) and the fact that the Ninth Circuit must revisit the question of a remedy from Seila Law, it is possible that there will be a circuit split which could, again, land the CFPB in front of the United States Supreme Court.
Defendants in CFPB Debt Relief Suit Will Pay $22k of $3.8m Judgment
The Consumer Financial Protection Bureau yesterday announced a stipulated final order with a debt relief company and its owners and officers, who will repay $22,000 out of a $3.8 million judgment after being accused of charging illegal advance fees. The defendants are also permanently barred from providing debt relief services in the future. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: While on its face, this settlement looks to be a very aggressive stance on the defendants’ actions, but with that type of reduction, the bite is much softer. To be clear, the settlement, which does impose a $3.8 million judgment against Timemark for consumer redress, will be suspended if Timemark and the named offices pay as directly respectfully a total amount of $22,000 within in ten (10) days. The settlement provides that the consideration for such reduction was based on the financial position of the defendants documented by sworn financial statements.
While the CFPB can make a business decision to accept a reduced amount vs. the endless battle that may turn to be fruitless if they push for the full amount, this type of negotiation should be an exception. Recalling the facts of this case, the defendants in three years collected around $3.8 million. To walk away, paying less than collected illegally, in the approximate amount of $3,778,000, does work as much as a warning to others contemplating the same illegal actions. Even if the judgment would have forced bankruptcy and/or a future reduced payment schedule or amount, reducing it in this manner may look to third parties as much too lenient.
It will be interesting for us all to follow to see if this is, in fact, an exception or if we see this method ongoing. In the second quarter of FY 2020, the CFPB collected civil penalties from two defendants totaling $8. This amount is remarkably less than the $17,100,000 collected in the second quarter of FY 2019.
Judge Approves $6.8M TCPA Settlement With Collector
A District Court judge in California has approved a plaintiff’s motion for a preliminary settlement in a Telephone Consumer Protection Act case which will see a collection agency pay $6.8 million in cash and debt forgiveness after making calls using an artificial or pre-recorded voice or an automatic telephone dialing system. More details here.
WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: On July 7, a California federal judge preliminarily approved a class-action settlement against National Credit Adjusters, LLC (“NCA”). The action, filed in the US District Court for the Eastern District of California, alleges violations of the Telephone Consumer Protection Act (“TCPA”), the Fair Debt Collection Practices Act (“FDCPA”), and California’s “Rosenthal Act” – the state’s iteration of the FDCPA. Plaintiff’s four-count complaint claims injury stemming from Defendant’s alleged use of an automated telephone dialing system to engage in collection activity. The named Plaintiff, Mike Cortes, alleges that NCA bombarded him with dozens of automated calls without his prior express consent, and continued to do so even after Cortes had instructed NCA to stop. The preliminary settlement approved by the court included a cash fund of $1,800,000 and a debt waiver of $4,996,500.88, equaling a total damages figure of $6,796,500. This amount is likely on the lower end of NCA’s potential liability, as the court’s opinion noted that “it is probable that protracted litigation over class certification, discovery, and the actual claims at issue would commence.” As the FDCPA includes a fee-shifting provision, extensive litigation could have cost NCA even more than it stands to pay under this settlement. In preliminarily certifying the agreement, the court held that “the [settlement] Agreement accounts for the expense, delay, and uncertainty that a trail would necessarily entail…” As this settlement figure makes clear, businesses operating within the debt collection industry must be aware of the potential for extensive liability for noncompliance with consumer-facing statutes like the TCPA and FDCPA.
California Legislature Working on Robocall Bill that Goes Beyond TCPA
The California legislature is considering a bill that would restrict the definition of an automated telephone dialing system and give individuals more power to revoke consent to be contacted beyond what currently exists in the Telephone Consumer Protection Act. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Bill AB-3007, currently in committee, would amend California’s existing consumer protection telecommunications law, set forth in the Public Utilities Code, §§ 2871-2876. The Bill seeks to clarify the definition of an “automatic dialing-announcing device” or “ADAD” by specifically listing the categories of equipment that qualify.
Perhaps most interesting, the Bill reflects an effort to modernize existing law and push beyond the TCPA, with an express shout-out to text messages. This is something the archaic TCPA still does not reference despite the commonplace nature of texting. Although it is well-settled that text messages are treated as “calls” in the TCPA context, the Bill’s proposed ADAD definition explicitly states that a device that “sends text messages” can be an ADAD, separate and apart from whether the equipment also “makes telephone calls.” In a not-so-exciting twist, however, the Bill introduces a new concept by prohibiting (without prior consumer consent) the use of automatic equipment that sends “prewritten text messages.” Under the Bill’s current language, such equipment appears to qualify regardless of its ability to store and automatically call or generate telephone numbers or the level of human involvement when sending the text. Expect this to be a heavily-disputed term. This is unchartered territory, with no direct guidance to be found in TCPA case law, other than a scattering of decisions that discuss the arguably different question of what constitutes a “prerecorded voice.”
How does a debt collector send a text message that is not “prewritten”? This is an industry that relies upon preapproved form communications to ensure FDCPA compliance. Is a form message, with insertions unique to a consumer’s name and account information considered “prewritten”? For debt collectors, this is an especially frustrating uncertainty, as the CFPB is expected to finally approve its Proposed FDCPA Rules later this year, including the sanctioned use of limited-content text messages to consumers – a message for which form language is provided.
So, what steps should you take if the Bill becomes law? Why wait? An existing California ADAD restriction, as well as the TCPA’s similar restrictions, are already on the books. Build a compliance program that incorporates broad consumer consent, which is and will remain the best defense. Especially if you are currently texting or plan to start texting, consider multiple channels to capture consent. Make that consent specific to calls and text messages made using an ADAD, ATDS, artificial or prerecorded voice, prewritten text messages and virtual assistants. Today’s consumers are increasingly willing to sign up for text messages and mobile phone calls, despite extra language about the call methodology. The exact language can evolve with the law. Capturing consent is not a wasted exercise, even if your company arguably does not require it under today’s legal framework, which is sure to change.
Colorado Enacts Law Prohibiting Garnishments
The governor of Colorado has signed a bill into law that will establish a moratorium through Nov. 1 on what the law defines as “extraordinary” collection activities while also expanding the amount of property and assets that can be garnished or seized to repay unpaid debts. More details here.
WHAT THIS MEANS, FROM MAKYLA MOODY OF GREENBERG SADA & MOODY: The enactment of SB20-211 in Colorado has changed the landscape for post-judgment execution on judgments awarded in consumer debt cases; at least until Nov. 1 and potentially until Feb. 1, 2021. Although garnishments, executions, and attachments are still permitted, any judgment creditor desiring to pursue these methods of post-judgment execution must meet specific requirements or they will be blocked by the courts and potentially face liability under C.R.S. 5-16-1010 et seq .– Colorado’s version of the FDCPA.
Following the adoption of this legislation, which became law on June 29, Judgment Creditors must be aware of the following changes to Colorado’s post-judgment process:
- The Act is a temporary measure, most components running until Nov. 1 unless these measures are extended by an Order of the Administrator of the CFDCPA extending the Act’s application until Feb. 1, 2021.
- A new temporary exemption for depository accounts of $4k now exists and will continue until Feb. 1, 2021.
- Prior to any Agency taking any new extraordinary collection measures, the judgment creditor MUST send a specific Notice (exact verbiage is in the Act in minimum 16pt. font) to a judgment debtor at least 10 days in advance of the action, and no more than 60 days in advance of the activity. This Notice is also required to accompany all Writs of Garnishment that are served- essentially providing the judgment debtor with 2 copies of the required Notice.
- Judgment debtors may invoke an automatic stay of these post-judgment activities by contacting the Judgment Creditor, orally or in writing, notifying the judgment creditor that they’ve been impacted directly or indirectly by COVID. The judgment debtor does not need to provide any proof to support their declaration of COVID impact. Once a Judgment Creditor becomes aware of the judgment debtor’s situation, the judgment creditor must suspend all post-judgment activities until the expiration of effective period of SB20-211 (Nov. 1 or Feb. 1, 2021 if the Act is extended by order of the Administrator).
- Failure to comply with these requirements subjects the judgment creditor to liability under Colorado’s version of the FDCPA.
Colorado’s courts have yet to adopt a unified response to the enactment of this legislation. However, several jurisdictions across the state are implementing different measures to ensure compliance. These measures range from refusing to issue any Writ of Garnishment until the judgment creditor has provided proof of compliance with Act to requiring the judgment creditor to file an affidavit attesting to specific elements whenever they seek to invoke a post-judgment remedy covered by the Act. Irrespective of measures being used by the Colorado Courts, one thing is certain, pursuit of post-judgment remedies, at least for the next three months, in Colorado just became more difficult with added risks to judgment creditors.
Fortunately, grassroot efforts by a coalition of groups connected to the collection industry were at the forefront of the fight against the legislation and were successful in ensuring that these measures are only temporary. However, it is expected that many of the means the consumer advocates attempted to implement or expand through the adoption of SB20-211 will be revisited during next year’s legislative season. To help support the fight against these efforts, interested parties can contribute to legislative efforts of ACA’s local unit ([email protected]) and the Colorado Creditor Bar Association (www.ccba-co.org).
Supreme Court Agrees to Hear Arguments in ATDS Case
The Supreme Court today granted a petition to hear arguments in Duguid v. Facebook, a case that will seek to settle once and for all how an automated telephone dialing system is defined under the Telephone Consumer Protection Act. More details here.
WHAT THIS MEANS, FROM SCOTT GOLDSMITH OF DORSEY: The rumors of the end to the TCPA have been greatly exaggerated. Consistent with the comments during oral argument, the Supreme Court found the government backed debt exception violated the First Amendment, but was properly severed from the rest of the statue by the Fourth Circuit.
This case was never well positioned to deliver a knock-out punch to the TCPA. The Fourth and Ninth Circuits agreed that severing the government backed debt exception was the proper remedy. The Justices were largely united on that result as well.
The result today should refocus attention on the Circuit split over the proper definition of an automatic telephone dialing system. After nearly thirty years of the TCPA, businesses still don’t know in some jurisdictions whether the equipment they’re using might expose them to ruinous damages in a TCPA class action. The same equipment may lead to TCPA liability in California when it is perfectly acceptable in Florida.
The Supreme Court will likely need to step up to decide, once and for all, the definition of an ATDS. The instant case does not offer many clues for how the Court would approach a future case on the ATDS definition. The majority opinion steered clear of using the legal term, “automatic telephone dialing system,” or its definition, instead opting to use the more nebulous term, “robocall,” when referring to calls restricted by the TCPA.
In the short term, TCPA litigators will continue to litigate under disparate Circuit decisions. We will also look out for the long expected new TCPA omnibus from the FCC, which may offer some clarity and uniformity to the TCPA landscape.
Groups Submit Comments, Suggestions to FCC Related to Call Blocking Safe Harbor
A number of associations, including ACA International and the American Association of Healthcare Administrative Management are urging the Federal Communications Commission to require voice service providers to notify individuals when calls are automatically blocked because it is the only way someone may find out that a legitimate call was inadvertently kept from being connected. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: As part of its ongoing efforts to make sure incorrect blocking of wanted calls is identified and fixed quickly, at its July 16 meeting the FCC considered a draft order on call blocking and labeling that is intended, among other things, to protect certain categories of “critical calls” and put in place a process to remedy blocking errors. The five Commissioners unanimously approved “two safe harbors from liability for the unintended or inadvertent blocking of wanted calls” that “are meant to provide further assurance to phone companies and allow them to strengthen their efforts in the battle against illegal and unwanted robocalls.” One safe harbor is intended to “protect[] phone companies that use reasonable analytics, including caller ID authentication information, to identify and block illegal or unwanted calls from liability.” The other safe harbor “protects providers that block call traffic from bad actor upstream voice service providers that pass illegal or unwanted calls along to other providers, when those upstream providers have been notified but fail to take action to stop these calls.”
Acknowledging the concerns of ACA International and eight other trade associations who jointly submitted an ex parte letter to Commission prior to this meeting, the FCC also approved a Fourth Further Notice of Proposed Rulemaking “about additional steps to protect consumers from robocalls and better inform them about provider blocking efforts.” The Commission is now seeking comments on “whether to obligate phone companies to better police their networks against illegal calls, and … require them to provide information about blocked calls to consumers for free” and on “notification and effective redress mechanisms for callers when their calls are blocked, and on whether measures are necessary to address the mislabeling of calls.” Specifically, the FCC is now proposing “to require terminating voice service providers to provide a list of individually blocked calls that were placed to a particular number at the request of the subscriber to that number” and to require them to “offer this service at no additional charge.” Also, the FCC is now asking for comments on “setting a more concrete timeline for redress options,” asking whether immediate notification or notification within a set time period (e.g., 24 hours) is feasible, and whether notification should be conditioned on caller request or prior registration.
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.
