Compliance Digest – October 19

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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.

Seventh Circuit Upholds Dismissal of FDCPA ‘Other Charges’ Class Action

The Court of Appeals for the Seventh Circuit has upheld a lower court’s dismissal of a Fair Debt Collection Practices Act class-action lawsuit, ruling that including line items for “interest” and “other charges” in a breakdown of the plaintiff’s debt in a collection letter does not violate the FDCPA, even when those items are $0.00. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW FIRM: In Degroot v. Client Services, Inc., No. 20-1089 (7th Cir. Oct. 8, 2020), the Seventh Circuit affirmed the January dismissal of an FDCPA putative class action lawsuit alleging consumer confusion caused by an itemized breakdown of a debt, with both “interest” and “other charges” listed as “$0.00.”

The theory underlying the case is as follows: Specifying that “$0.00” is currently owed for interest or other charges implies they may be charged in the future and/or that a static debt is actually dynamic.

Although even the CFPB considers this theory “unreasonable,” as argued in its amicus brief filed in the appeal, district courts within the Seventh Circuit have previously reached conflicting conclusions. Compare Delgado v. Client Servs., Inc., No. 17-CV-4364 (N.D. Ill. Mar. 7, 2018) (granting a motion to dismiss because line items specifying “$0.00” in “interest” and “other charges” were accurate and “could not lead an unsophisticated consumer to believe that interest or other charges would later accrue”), with Duarte v. Client Servs., Inc., No. 18 C 1227 (N.D. Ill. Mar. 29, 2019) (denying judgment on the pleadings and finding “[t]he phrase ‘Other Charges’ along with an amount of ‘$0.00’ listed could have implied to plaintiff, as well as the unsophisticated consumer, that plaintiff could have incurred additional charges”).    

The Seventh Circuit has now resolved the conflict by flatly rejecting this theory. After Degroot, if a “zero” balance statement is accurate as of the date of the letter and the letter is “silent as to the future,” it “cannot be construed as forward looking and therefore misleading” and “would not confuse or mislead the reasonable unsophisticated consumer.”

Many courts around the country have reached the same conclusion. See, e.g., Reyes v. Associated Credit Servs., Inc., No. 1:19-CV-01670 (M.D. Pa. July 6, 2020) (collecting authorities rejecting the type of claim raised in Degroot). However, only time will tell if this slows down the plaintiffs’ bar in jurisdictions lacking a definitive Court of Appeals decision, as provided in Degroot.


Judge Grants MTD in FDCPA Case Over Duplicate Letters

A District Court judge in New York has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act case but denied a motion for attorney’s fees, after the defendant sent two identical collection letters in close succession to one another, which the plaintiff claimed overshadowed the validation notice. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: This case invokes the adage “no good deed goes unpunished.” The agency sent an initial validation notice providing the consumer with her 30-day validation/dispute rights. Before the 30 days expired, the agency sent a second/identical initial validation notice to the consumer (the case does not explain why; perhaps a system glitch). The consumer never exercised her rights and instead tried to profit from the fact that two “initial” notices were sent. The agency moved to dismiss arguing that it had given the consumer even more time than the statutorily-required 30 days to dispute/request validation. That is, the good deed. The punishment was the agency got sued for it.

The good news – the Court easily dismissed the suit concluding that this particular good deed would not be punished. The court found “that the Second Letter neither overshadowed or contradicted the validation notice contained in the first letter in violation of section 1692g, nor did it make a false representation or deceive [the consumer] in an effort to collect the debt in violation of section 1692e. [The agency] instead merely extended [the consumer’s] time to dispute the validity of her debt beyond the initially noticed validation period, which it was permitted to do.” The bad news – the court, unfortunately, did not award “bad faith” attorneys fees to the agency for successfully defending this attack.

Judge Grants MSJ For Defendant in Collector Bias Suit

A District Court judge in Kansas has granted a motion for summary judgment in favor of a defendant that was accused of firing a collector because she was African-American, which underscores the importance of having documented policies and procedures and following them at all times. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: Creditors and collectors are also employers. Fortunately, the procedures they maintain for compliance with collection laws can aid in employment litigation as well. In this case, the creditor’s call logs and other records demonstrated that the plaintiff was fired for a nondiscriminatory reason: repeated violations of the bank’s voicemail policy. 

Judge Grants MTD in FDCPA Case

A District Court judge in New York has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act, in a case where the plaintiff attempted to use many of the current crop of greatest hits being claimed by individuals suing collection agencies. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: “What has been will be again, what has been done will be done again; there is nothing new under the sun.” Ecclesiastes 1:9. What? This is the first and last time you will see me quoting scripture, but how else can I address the dismissal of a Barshay Sanders (“BS”) lawsuit. Watson v Premier Credit of N. Am., LLC is the latest in what seems to be a weekly defeat of a Barshay Sanders drafted complaint. Barshay Sanders is a small law firm located in Long Island, New York that continues to file lawsuits making the same set of claims which the courts continuously reject.

In Watson, there were three of BS’s favorite allegations:

  1. That because the companies phone number appeared three time within the letter; as part of their letterhead at the top alongside the words “Complaints or Compliments”; in the center of the page with the instruction “to make payment arrangements or discuss other options” and at the bottom of the page as part of the correspondence block there was a violation of the FDCPA. The claim was that due to the language next to the number, the LSD would believe that the number could not be used to dispute the debt. The Court cited several BS cases where they lost similar arguments.
  2. That there was inadequate identification of the current creditor. After identifying “”College Assist” as the “guarantor at the top of the page, the first paragraph stated , “[y]our student loan has defaulted. College Assist has taken assignment of the debt from your loan holder. Premier Credit of North America, LLC (PCNA) is collecting this debt for College Assist.” Could it be any clearer? As expected the Court made short shrift of that claim and found, similar to the first claim, it failed to state a claim.
  3. Lastly, we have my personal favorite, that the letter was “formatted in a manner such that the validation notice is visibly inconspicuous.” (Compl. at 8.). Ignoring the fact that the validation notice is usually the 2nd or 3rd separate paragraph of a letter .BS like to argue that in the absence of day-glo lettering, printed double or triple the size as the rest of the text in the letter and if possible with pointy arrows surrounding it, the poor LSD would miss the validation notice because it was “buried” within the text of the letter. This is notwithstanding the fact that it is in the same size text as the rest of the letter and in a separate paragraph. As the Watson Court noted “Plaintiff’s attorneys should be aware that formatting of this kind does not violate the FDCPA, given that a court in one of their recent lawsuits dismissed their formatting complaints because “the validation notice here is on the front page of the body the letter.” Ouch!

I’ve heard that “the definition of insanity is repeating the same mistakes over and over again and expecting different results.” (the origination of this text is in dispute, but it has been attributed to Narcotics Anonymous)  not much else to say.

Defendants Settle Class Action FDCPA Suit

A District Court judge in Florida has granted preliminary approval of a settlement in a Fair Debt Collection Practices Act class action that will see the defendants refund or waive $512,000 in medical fees and pay $500,000 in statutory damages after the plaintiffs were charged for medical care when it should have been covered under their personal injury protection insurance. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: This case is a good example of the challenges collection agencies have that collect on medical debt. Laws regulating what medical debt may be collected vary by state.  This case involved what is commonly referred to as balance billing. That is, the difference between a healthcare provider’s charge and the amount allowed by the insurance company based on the patient’s policy.

One common scenario where balance billing arises is when a provider is out-of-network and, therefore, not subject to the terms and rates set by providers who are in-network. If Medicare or Medicaid is involved, another layer of complexity is added in what may be subject to collection. California, Connecticut, Florida, Illinois, Maryland, New Hampshire, New York, Oregon, Virginia all have comprehensive laws regarding balance billing. 

The subject lawsuit involved Florida law where if a patient is seen by an out-of-network provider at an in-network hospital, the patient is only responsible for paying the provider the in-network fee. In my home state of Illinois, out-of-network facility-based providers are prohibited from billing patients for expenses other than the deductible and copay that they would have normally paid if they had seen an in-network provider.

The moral of the story is know the laws of the state where you are collecting, and when it comes to medical debt ensure that the laws permit collection of types of debt at issue.

Judge Grants MSJ For Plaintiff in FDCPA Case Over SOL Disclosure

A District Court judge in Illinois has granted a plaintiff’s motion for summary judgment, ruling that a defendant needed to disclose in a collection letter that a partial payment or promise to pay would restart the statute of limitations under state law, even though it disclosed in the letter “we will not restart the statute of limitations on the debt if you make a payment.” More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: Sadly, the outcome in this case was predictable. Portfolio Recovery Associates, LLC (“PRA”) sent a letter to a consumer in this case saying due to the age of the debt, PRA would not file a lawsuit or consider any partial payment a revival of the statute of limitations. It did not, though, say that it could not pursuant to the law. The Seventh Circuit’s recent decision in Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679 (7th Cir. 2017) found this exact scenario a violation of the FDCPA because the letter misrepresented to the unsophisticated consumer PRA was not going to file a lawsuit on the time-barred debt based on its internal policies rather than the law.

The Pantoja decision is nothing short of an example where the court creates a requirement under the FDCPA not stated within the statute. As abhorrent as that is, many other circuit courts have reached the same decision. It is the current direction nationwide. This case should serve as a reminder to review your letters and phone scripts to confirm they include language saying you “cannot” file a lawsuit (rather than “will not”). And in states where it is true, your letters and scripts must say a partial payment will restart the statute of limitations. 

One danger is to rely upon state requirements (such as that of California), which say you must tell consumers you “will not” sue due to the age of the debt when the debt is beyond the statute of limitations. Such language may comply with state law, but it doesn’t comply with federal law. Your communications should say “cannot and will not.” The overall point is that courts will find a violation of the FDCPA if you represent a legal requirement as an office procedure. Telling a consumer you will or will not do something when in fact a law requires you to act in a certain way will be seen as a misrepresentation of the law to the unsophisticated consumer and an FDCPA violation.

CFPB Lays Out Framework For Terminating Consent Orders Early

The Consumer Financial Protection Bureau has announced the terms under which a company may seek to terminate a consent order before the original expiration date, as a means of easing the burdens that the orders can place on those companies. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The policy statement issued on October 5 by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) to set forth a process for early termination of administrative consent orders was a bit perplexing given the significant increase in enforcement activity this year alone. The policy does not apply to Judicially approved consent orders which is otherwise governed by the Rule 60 of the Federal Rules of Civil Procedure.

Nonetheless, the early termination policy should signal to industry that the CFPB is looking for real and significant change by the entity rather than just proof that compliance with the consent order has occurred. Consent orders are broadly written and provide for a great deal of leeway by the Bureau. The relationship with the entity and the CFPB does not end when the consent order is signed, rather its continues usually for five (5) years thereafter. Reporting requirements are intense and in many instances the CFPB can do spot checks and inquire about an array of issues during that 5-year period. As noted in the policy statement, exceptional circumstances must be shown for the Bureau to consider let alone approve an early termination.

As the ARM industry holds it breath for the final debt collection rule, it is important not to lose sight of the fact that the CFPB and the Federal Trade Commission are closely securitizing the debt collections industry. With an election and a possible shake-up at the CFPB, examinations and investigations will continue with this current trajectory. While compliance is the priority, more may need to be done than just checking the box.  

Judge Grants MTD in FDCPA Case Over ‘Other Charges’ For a Second Time

In a case that was defended by Ethan Ostroff of Troutman Pepper, a District Court judge in Illinois has, for the second time, granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by referencing “other charges” which might be accruing and affecting the balance owed by the plaintiff, because the letter was not specific enough as to what those other charges might represent. More details here.

WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER: Consumers continue to probe the limits of the McCalla safe harbor, and courts continue to reject the notion that debt collectors must painstakingly identify each and every circumstance that may affect an account’s balance. Fortunately, recent opinions show that courts are taking an overwhelmingly pragmatic approach, and are largely rejecting the concept that a debt collector must painstakingly and individually identify each and every circumstance that may affect an account’s balance. Hopefully, this trend will continue, and will push consumer attorneys to explore different theories of liability as these types of cases continue to yield no fruit. TO help that process, debt collectors should continue to be mindful of the fact that simply placing the McCalla safe harbor on a letter is not a “get out of liability free” card, and should avoid warning consumers about interest, fees or charges the debt collector knows are not accruing (or cannot legally accrue).  

Judge Dismisses TCPA Suit, Says ATDS Provision Unconstitutional For Calls Made Before July SCOTUS Ruling

A District Court judge in Louisiana has granted a defendant’s motion to dismiss after it was sued for violating the Telephone Consumer Protection Act by making calls to individuals’ cell phones using an automated telephone dialing system, saying that any such call made before July 6 — when the Supreme Court ruled in Barr v. American Association of Political Consultants — relinquished the court’s subject matter jurisdiction over the claims. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: WOW – The surprises never cease – Nothing is simple in the land of the TCPA. Back in July, the Supreme Court held in Barr v. American Association of Political Consultants, 140 S. Ct. 2335 (2020) that the government-debt exception that was added by Congress to the TCPA in 2015 was unconstitutional. Rather than invalidating the entire TCPA, the Supreme Court chose to sever the unconstitutional government-debt exception from the remainder of the statute. The outcome in Barr was expected and not particularly controversial.

However, the Supreme Court did not clearly answer the logical follow-up question:  how should autodialed calls placed prior to its ruling in Barr (but after the enactment of the government-debt exception in 2015) be treated? That question was the crux of Creasy v. Charter Communications, Inc., 2020 WL 5761117 (E.D. La. Sept. 28, 2020). 

In Creasy, all but one of Charter’s 130 telephone calls to the plaintiff (which were not placed to collect a government debt) were placed during the time period in which the unconstitutional government-debt exception was still operative. Charter filed a motion to dismiss, arguing that the offending 2015 government-debt exception rendered the entire TCPA unconstitutional until the Supreme Court severed it from the statute in Barr  in 2020. Charter’s interpretation in this regard effectively meant that there was no valid TCPA statute in place for approximately 5 years. Really??? Naturally, the plaintiff argued the opposite, namely, that no court had ever ruled that the general TCPA prohibition against autodialed calls was unconstitutional, even before Barr

The Federal District Court for the Eastern District of Louisiana sided with Charter, relying in part on the “timeless principle” that an unconstitutional law is void. Thus, the Court dismissed the plaintiff’s claims with respect to the calls that were placed prior to Barr.

This is a good decision for the collection industry and other District Courts could follow its rationale. But, of course, this is the TCPA, where so much in the law throughout the Country is in flux. And, plaintiff may very well file an appeal. Also, the decision must be viewed through the eyes of the Supreme Court in Barr, where the Supreme Court held that the TCPA was not unconstitutional. So, it is inevitable that there are going to be many other cases that address Creasy and raise additional issues that have to be resolved. And, how are other federal courts going to construe Creasy  under different sets of facts and circumstances.  So much is in the air and so much has to be resolved.  The fight on so many complex TCPA issues continues.   And wait, there’s more  – the showdown in the Supreme Court in Duguid v. Facebook coming this Winter/Spring (?) to a theater near you!!!!

N.Y. Cuts Judges to Trim Budget, Longer Delays Expected

Anyone suing or being sued in New York state court should brace for delays in the adjudication process after the state’s Office of Court Administration announced that 46 judges are not being re-certified in a move intended to cut its budget to help the state manage expenses in the wake of the coronavirus pandemic. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: Under New York law, judges must retire at the age of 70. To assist with New York’s overwhelming case load, however, retired judges between the age of 70 to 74 may apply for re-certification which, if granted, permits a judge to continue working for two-year periods, until the age of seventy-six. According to Chief Administrative Law Judge Lawrence Marks the decision to deny re-certifications to 46 out of the 49 judges who requested it was made to avoid having to lay off court staff in the face of a $300 million cut to the state judiciary’s budget. The move is expected to save the state approximately $60 million. The shrinking number of judges is expected to place an additional burden on an already strained court system, resulting in longer delays and increased caseloads for the remaining judges. To prevent a backlog, more courts may turn to mediation as a means to resolve disputes rather than trial, which typically absorbs more of the court’s time and resources.

Judge Overrules Sanctions Recommendation in FDCPA Case

After a Magistrate Court judge recommended that the defendants in a Fair Debt Collection Practices Act case file a motion for sanctions, a District Court judge in New York has denied the motion, ruling that the “reckless and overzealous advocacy” of the plaintiffs does not rise to the threshold of constituting “bad faith.” More details here.

WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: “Let’s not have a double standard. One standard will do just fine.” – George Carlin. 

In this case, Plaintiff’s counsel avoided sanctions for filing an amended complaint which far exceeded the leave given by the court. Plaintiff’s counsel was given leave to file a Third Amended Complaint “to clarify and streamline the actual causes of action going forward in the case and the proper plaintiffs in the case as well based on Judge Zouhary’s decision.”  “This was not “a blank check to conform the [Third Amended Complaint] to the evidence.’” 

Not wanting to waste an opportunity to make the case more lucrative, Plaintiffs added an expanded, nationwide class against the Defendants and an FDCPA cause of action against the Law Firm Defendants, significantly expanding the Complaint.  The magistrate judge recommended sanctions against Plaintiffs  for the complete disregard of the court’s order.   But, the district judge said that sanctions required a high standard of bad faith, and this wasn’t quite that bad.

It is interesting to note that the Law Firm Defendants were being sued for allegedly filing lawsuits they should have known would fail. Do you see the double standard? Lawyers who represent creditors are subject to an apparent strict liability statute (the FDCPA), while lawyers who represent debtors avoid sanctions for disregard of a court order. Lawyers who represent debtors have no fear of a fee-shifting, strict liability statute. I wonder if the debtors’ bar would accept just one standard for punishing lawyers who bring claims which are destined to fail?

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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