Compliance Digest – September 21

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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 Affirms Dismissal of FCRA Suit Over Deleted Item on Credit Report

The Court of Appeals for the Fifth Circuit has affirmed a lower court’s dismissal of a lawsuit in which an individual alleged a credit reporting agency violated the Fair Credit Reporting Act by deleting a positive from a credit report, which is fine as long as the item was not deleted from his credit file. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Hammer v Equifax dealt with an unusual set of facts. Hammer sued because a positive tradeline was not listed on his report. The Fifth Circuit Court of Appeals applied a strict statutory construction analysis in affirming the dismissal of the three FCRA claims.

Hammer had a Capital One credit card and timely made his monthly payments. For some reason it fell off the reports. He complained and two bureaus included back the reporting but it ended up staying off the Equifax report. Plaintiff sued, claiming his credit score fell as a result of losing a positive trade line, he was then denied a credit card, rejected for one mortgage, and offered a high interest rate on another.

The first claim was under § 1681e(b) for failing to follow reasonable procedures to assure the maximum possible accuracy of the report. The Court held that “the omission of a single credit item does not render a report ‘inaccurate’ or ‘misleading.’ Businesses relying on credit reports have no reason to believe that a credit report reflects all relevant information on a consumer.”

The second claim was under § 1681i(a) for failing to investigate an omission. The Court affirmed dismissal, holding that Hammer “disputed the completeness of his credit report, not of an item in that report. As a result, he did not trigger the CRA’s § 1681i(a) obligation to investigate.”

The last count was pursuant to § 1681i(a)(5)(B) for failing to notify him when it reinserted the account into his credit report. In rejecting that claim. it held that section deals with items deleted from and reinserted into credit files, but Hammer argued “that Equifax had not removed the Capital One card from his credit file but only excluded it from his credit report. Equifax therefore had no duty under § 1681i(a)(5)(B)(ii) to notify Hammer.”

The main takeaway was how the Court strictly applied the FCRA provisions and held plaintiff pled himself out of court.

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Appeals Court Affirms MSJ For Defense in FCRA Permissible Purpose Case

The Eleventh Circuit Court of Appeals has upheld a lower court’s summary judgment ruling in favor of a defendant that was accused of violating the Fair Credit Reporting Act by accessing an individual’s credit report after an identity thief submitted the plaintiff’s personal information to the defendant. More details here.

WHAT THIS MEANS, FROM GLENN BROWN OF SQUIRE PATTON BOGGS: Domante v. Dish Networks, L.L.C., No. 19-11100, 2020 U.S. App. LEXIS 28682, at *7-8 (11th Cir. Sep. 9, 2020). In this important case, the 11th Circuit weighs in on the meaning of “legitimate business need” under the Fair Credit Reporting Act (“FCRA”). The plaintiff was a victim of identity theft- a thief (or thieves) attempted to use plaintiff’s identity to open an account with Dish. Dish pulled a credit report in order to verify the requesting applicant’s identity against information from its internal database (where plaintiff was registered), which process confirmed that the account was being requested by an identity thief and not by plaintiff. Dish blocked the account from being opened, but plaintiff brought suit claiming Dish violated the FCRA when it pulled her credit report without a legitimate business need. The 11th Circuit agreed “with the Sixth Circuit that requesting and obtaining a consumer report for verification and eligibility purposes is a ‘legitimate business need’ under the FCRA.”

Collection Firm Facing Class-Action FDCPA Suit

A collection law firm in Virginia is being sued for allegedly violating the Fair Debt Collection Practices Act by misrepresenting the amount of attorney involvement in drafting collection letters and for charging “unreasonable” fees to individuals who do not pay their rent. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: This recently filed putative class action case alleges Senex Law violated various sections of the FDCPA in designing and mailing certain letters. Allegedly, Senex designed unpaid rent collection letters on behalf of landlords using the landlord’s letterhead and mailed these letters to the landlord’s tenants. Plaintiff alleges Senex Law is a debt collector and noted that Senex Law was previously sued for conduct “materially identical” to the current case in Crawford v. Senex Law, P.C., 259 F. Supp. 3d 464 (W.D. Va. 2017) (denying Senex’s motion to dismiss). Plaintiff makes some harsh allegations stating Senex operates as a “debt collection mill, purporting to practice law with respect to issuing these Notices, and fail[s] to even give a nod to compliance with the FDCPA in its Notices. Senex has had three years to learn its lesson and voluntarily adjust its practices but has wholly failed to do so.”  The Crawford case was settled in August 2018. We will have to wait and see how the facts in this case differentiate from the Crawford case.

Judge Grants MTD in FCRA Case Over Background Check Disclosure

A District Court judge in Massachusetts has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Credit Reporting Act because it included “extraneous” information on a background check disclosure form, ruling that the plaintiff never alleged that the information “caused any actual confusion.” More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Kenn v Eascare, LLC points out that the standard of review regarding the injury in fact requirement enunciated by the United States Supreme Court in Spokeo, Inc v Robbins is different when viewed through the lens of the FCRA (Fair Credit Reporting Act) as opposed to the FDCPA (Fair Debt Collection Practices Act).

In Kenn, the court followed several prior FCRA decisions coming to the conclusion that the seminal inquiry was whether the plaintiff was personal affected by the alleged violation writing “[t]he mere fact of technical non-compliance does not establish that individuals have suffered a sufficiently concrete injury.”  Quoting from an earlier District of New Jersey decision “[t]he issue is not whether ‘technical or procedural requirements may cause concrete harm, [but] whether the violation has caused such harm,’ an analysis that is ‘situation-dependent.'” Baccay v. Heartland Payment Sys., LLC, 2019 U.S. Dist. LEXIS 12790, at *21 (D.N.J. Jan. 28, 2019). Thus, there must be some showing that a Plaintiff was actually affected by the alleged violation. In this case the Plaintiff did not alleged she was confused by the extra language in the single page disclosure and authorization form she signed which she alleged was violative of the statute and that proved fatal to her claim. This provides a defense not present in an FDCPA suit where the inquiry is directed to the ill defined “least sophisticated consumer” and the question is whether the alleged violation hypothetically could cause harm.

A second benefit for those providing defense in a putative FCRA class action is that by definition if the inquiry must be “situation dependent” then class treatment is in appropriate. In sum, this case provides another example of the application of Spokeo in FCRA cases, unavailable for suits claiming violations of the FDCPA

CFPB Sues Encore, Subsidiaries, for Violating Terms of 2015 Consent Order

The Consumer Financial Protection Bureau today filed a lawsuit against Encore Capital Group, Inc. and its subsidiaries, Midland Funding, LLC, Midland Credit Management, Inc., and Asset Acceptance Capital Corp., accusing the companies of violating the terms of a 2015 consent order by suing consumers without possessing required documentation, using law firms and an internal legal department to engage in collection efforts without providing required disclosures, and failing to provide consumers with required loan documentation after consumers requested it. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENT VISION: Well, it is good to know that consent orders are not just a piece of paper, and noncompliance of such has penalties.  In this case,  Encore Capital Group Inc. (“Encore”), the country’s largest debt collection firm, is being sued by the CFPB for failure to comply with the terms of the 2015 settlement agreement,  which was  63 pages in total.  The lawsuit, which is an example of the various violations, states that after the agreed order, “Encore filed more than 100 lawsuits to collect consumer debts after the applicable statutes of limitations had expired.” The CFPB is seeking injunctions against the companies, damages, redress to consumers, disgorgement of ill-gotten gains, and civil money penalties.  In other words, if the CFPB is successful, the noncompliance will result in a substantial financial impact on Encore.

When looking back at prior actions taken to enforce consent orders, my search only located one other such action to enforce a consent order; the CFPB action taken in 2017, with Security National Automotive Company, LLC (“SNAAC”) due to SNACC’s failures in meeting its redress obligations ($2.275 million) under a 2015 consent order.  The 2017 action resulted in a new order that required SNACC to pay the remaining obligations for redress and an additional $75,000 to cover the CFPB administrative costs of enforcing the order and an added penalty for failure to comply with the 2015 order in the amount of $1.25.  This second penalty is in addition to the $1 million paid as part of the 2015 order.  

While a complaint is not a finding or ruling that the defendants have violated the law, since this is one of a few times the CFPB has taken action to enforce a consent order, one could assume the CFPB feels confident of its position. In the SNACC case, the initial penalty was $1 million; in this case, the 2015 penalty paid by Encore was $10 million. If CFPB decided to approach a second penalty in the same manner as it did in the SNACC case, Encore is looking at a second payment to the CFPB in the amount of $10,250,000, in addition to any redress and administrative fees. If the CFPB takes a more aggressive approach, this number could be much higher.  

Gov’t Adopts Narrow ATDS Definition in Supreme Court Brief

The federal government, in a brief filed Friday with the Supreme Court, thinks that the definition of an automated telephone dialing system starts and ends with technology that has the capacity to use a random or sequential number generator to store or produce telephone numbers. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: IT’S Showtime in the ATDS Fight – – We now have a potential real gamechanger  in the ATDS fight by way of the U.S. Department of Justice (DOJ) Brief filed in the Facebook case. The DOJ asks the Supreme Court to narrowly interpret the ATDS definition to only apply to dialing systems that have the capacity to use random or sequential number generators to store or produce numbers to be called. So, the U.S. Government ( by way of the DOJ), argues that the TCPA ATDS definition should only apply to systems that employ random and sequential number generators. The DOJ’s brief is top notch and makes very cogent arguments. This gives the Supreme Court the opportunity to adopt the DOJ’s narrow position on the ATDS interpretation and close the issue once and for all.   

How will the Supreme Court Rule? Let’s see if the High Court strictly construes the language in the ATDS definition to apply only to systems using random and sequential number generators, and then tells Congress that it’s time to update a partially antiquated and outmoded statute which needs to be updated to comport with 21st Century business sensibilities. 

Appeals Court Overturns BFE in FDCPA Case Because Defense Lacked Proper Procedures

The Second Circuit Court of Appeals has overturned a summary judgment ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act because it allegedly sent numerous debt collection notices and subpoenas to the wrong individual, determining that the collector should not have been entitled to invoke the bona fide error defense. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: When it comes to the consumer’s name, “Junior” is very important. The short version here is that numerous post-judgment remedies were carried out against an individual with the same name as the actual judgment debtor but without the “Junior” tag. In response to those efforts, the “non-Junior” repeatedly told the collector he was not the judgment debtor, that he did not use the suffix “Jr.,” and that his Social Security number did not match the judgment debtor’s.

The district court dismissed the “non-Junior’s” claim based on the bona fide error defense. The Second Circuit agreed that the collector did not intentionally attempt to collect from the wrong person, but in the end reversed and held that whether the alleged error was bona fide, as well as whether the firm maintained procedures reasonably adapted to avoid the error, were questions of fact for the jury. So this case will continue, at least in part because the firm did not reduce its policies and procedures to writing and because there is evidence in the record to potentially show the collector should have known they were attempting to collect from the wrong person.

The legal insight to be drawn here is that while the bona fide error defense is a great tool, you must be prepared to prove that the procedures are adequately document and implemented. If the procedures aren’t written down, they essentially don’t exist for purposes of establishing bona fide error. Likewise, internal records should establish that the relevant policy is being followed. Revisit your policies and procedures often and audit whether they are reasonably implemented and followed to increase the chances of successfully defending on bona fide error grounds.

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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