Compliance Digest – November 9

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.

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.

Judge Denies Defendant’s Motion in FDCPA Case Over Deceased’s Debt

A District Court judge in Louisiana has denied a defendant’s motion for judgment on the pleadings or summary judgment after it was sued for allegedly violating the Fair Debt Collection Practices Act by, among other claims, failing to properly validate a debt when it attempted to collect from the estate of a deceased individual. More details here.

WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER: There’s lots to unpack in this opinion, but it highlights one important thing I think all defendants would do well to keep in mind: it can be tempting to move for summary judgment before the close of discovery, but proceed with caution. As this opinion explains, parties opposing early summary judgment motions can easily defeat those motions, at least temporarily, by seeking relief under Fed. R. Civ. P. 56(d). This rule provides that where a nonmovant shows by sworn testimony that “for specified reasons, it cannot present facts essential to justify its opposition,” the court may deny the motion or defer consideration pending the completion of discovery. Because relief under Rule 56(d) is to be “liberally granted,” nonmovants who properly invoke the Rule are overwhelmingly successful in defeating or deferring summary judgment motions made prior to the end of discovery. Here, denial of Defendant’s motion wasn’t without its benefits: the court issued an opinion and outlined the areas on which Defendant’s renewed summary judgment motion should focus. But where motions are denied with little or no such explanation, early summary judgment motions can inadvertently serve as an unnecessary preview for the nonmoving party and enable them to shift their litigation strategy accordingly. Defendants should consider the likelihood of a Rule 56(d) statement when making early summary judgment motions, and carefully weigh the risks and benefits of moving before discovery closes.

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CFPB Stands Behind Collector for Itemizing Debt in Letter

Thanks to the team at Ballard Spahr for noticing that the Consumer Financial Protection Bureau filed an amicus brief in support of a debt collector’s position that it did not violate the Fair Debt Collection Practices Act when it included line items indicating that an individual owed $0.00 in interest and collection fees in a collection letter. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: In the past few years there have been dozens of FDCPA lawsuits that alleged a collector’s letter was misleading if it had $0.00 in columns discussing the debt. The courts were split on the issue. Some granted motions to dismiss, some ruled for the debtor, and others let the cases proceed beyond the pleading stage.  There seems to be some recent clarity on the issue.  The 7th Circuit rejected the theory in DeGroot v. Client services, as did the 2nd Circuit in Dow v. Frontline Asset Strategies. Hopefully the Third Circuit agrees in the Hopkins v. Collecto case.

It likely will help that the CFPB filed an amicus. The CFPB cites the relevant cases but also spends a lot of time discussing its safe harbor letter in the NPRs. It pointed out that the proposed letter breaks a debt down, such as the amounts for principal, interest, costs, and fees. The CFPB did not include the proposed letter in its recently issued rules but likely will do so next month when it is suppose to issue more rules.

It is nice to see the CFPB file a brief in support of a debt collector. It seems like in most (all?) prior instances, it was on the other side in industry litigation. Now we’ll await its proposed letter.

OCC Issues ‘True Lender’ Final Rule To Help Facilitate Loan Sales

The Office of the Comptroller of the Currency has issued a final rule that will close a gap in the process of banks selling loans to third parties, such as debt buyers, which could help facilitate more portfolio sales. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: The issuance of this rule is not a surprise. Following its finalization of its “valid-when-made” rule to fix the problem created by Madden v. Midland Funding, it was expected that the OCC would issue a rule stating that a national bank or federal savings association is the “true lender” of a loan if, as of the loan origination date, it is named as the lender in the loan agreement or it funds the loan. This is exactly what the rule says. Part of the OCC’s reasoning in issuing this final rule is to facilitate alternative lending, particularly in the fintech space. According to the OCC the lack of guidance on this issue was “chilling” innovation. 

It is important to note that the OCC’s rule only applies to federally chartered institutions, that means that state-chartered institutions will need to work with the FDIC if they would like a similar rule. The FDIC published a final rule over the summer which addressed the “valid-when-made” doctrine, but specifically stated that it did “not address the question of whether a State bank or insured branch of a foreign bank is a real party in interest with respect to the loan or has an economic interest in the loan under state law, e.g. which entity is the ‘true lender.’ ”

Pa. Bill Would Require Utilities to Credit Report All Payments

A bill has been introduced in the Pennsylvania General Assembly that would require utility companies give consumers the option of opting in to have their payments reported to the three major credit reporting agencies as a means of helping consumers improve their credit scores. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: This bill appears to be drafted to help increase consumer’s credit scores. The bill’s language isn’t clear about whether a consumer can opt in while they are timely paying their utility bill and then opt out when they are not. As such, a credit reporting agency, an undefined term, may give little weight to the inclusion of this data in its algorithm for clculating credit scores.  Additionally, the bill doesn’t even require, if it could, that credit agencies use this information in determining consumer’s credit scores. Seems like a lot of work for likely nothing.

Advocacy Groups Sue CFPB Over Payday Lending Rule Changes

As the industry anxiously awaits the release of the Consumer Financial Protection Bureau’s debt collection rule, another rule released by the Bureau is under attack from consumer advocates, in what could be a sign of what’s to come once the debt collection rule is released. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: The Administrative Procedure Act (APA) governs the process by which federal agencies develop and issue regulations. Also, under the APA, final agency decisions are subject to judicial review.

Here, the NALCAB is primarily challenging the Bureau’s reasoning in repealing certain aspects of a prior 2017 Payday lender rule as arbitrary and capricious.  What does this mean for the debt collection industry? 

Generally, under the APA, final agency action that is arbitrary and capricious will be set aside and held unlawful.  The CFPB’s recently released final Debt Collection Rule clarifying the FDCPA is still being reviewed by various stakeholders.  The level of interest among the various stakeholders was high in the proposed FDCPA rulemaking. After more than seven years in the making, numerous engagements with various stakeholders and per the CFPB, a review of “over 14,000 comments” the Bureau issued the final Debt Collection Rule.  The Bureau appears to have minimize an APA challenge to the final Debt Collection Rule by adding a rebuttable presumption to the call frequency limitations and adopting the rule pursuant primarily to its FDCPA authority and not relying on the Bureau’s Dodd-Frank Act UDAAP authority, which could have applied to creditors.

However, the final Debt Collection Rule is vulnerable to change under a new Administration. CFPB Director Kraninger, a Trump appointee, issued the final Debt Collection Rule and is to issue the second debt collection final rule focused on consumer disclosures in December 2020.  A Biden Administration in 2021 will likely result in a new CFPB Director, a review of the final Debt Collection Rules, and possible changes to the final rules. Bureau changes to the final Debt Collection Rule could be challenged under the APA.

If the final Debt Collection Rule is changed in the near future, the NALCAB’s APA case will be interesting to follow to see how the court applies the arbitrary and capricious standard and whether it finds the Bureau’s action unlawful when is repealed certain aspects of the Payday lender rule. 

NCLC Report Calls Out States For Poor Exemption Protections

You have to hand it to consumer advocacy groups. They know how to name a report that will grab everyone’s attention. The National Consumer Law Center yesterday released a report, “No Fresh Start 2020: Will States Let Debt Collectors Push Families Into Poverty In The Wake Of a Pandemic?” which grades each state on their exemption laws preventing income and assets from being seized. Bad news for the states: nobody received an ‘A’, and only nine states received a ‘B’, indicating they had “fairly strong” protections in most categories. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: Since the pandemic started, the concern for the well-being of low-income and minority consumers has been an obvious concern. The CARES Act attempted to address those concerns by mandating certain changes to credit reporting, offering deferments and forbearances to residential mortgages and student loans. States also implemented their own array of moratoriums by implementing stays on garnishments, evictions and in some instances home foreclosures and personal seizures.  The conventional wisdom was that these relief packages would be temporary. However, over seven months later, the country is no farther along in fighting the virus and as a result, our economy is slow to recover leaving a large population of consumers vulnerable.

It is therefore no surprise that consumer advocates like the National Consumer Law Center (NCLC) are putting forth reports highlighting the potential economic hardship of consumers while the pandemic rages on. Industry must pay attention because the fundamental and legal tools that creditors do utilize to enforce valid and legal judgments may be at risk or eliminated in their entirety.  

The NCLC’s most recent report (Report): No Fresh Start 2020: Will States Let Debt Collectors Push Families into Poverty in the Wake of the Pandemic?  is a nation-wide analysis of state exemption laws to support their conclusion that (1) those laws do not do enough to protect consumers and (2) ultimately  those exemption laws should be further restricted or eliminated. But read the report as a whole. Many years ago, at the NCLC among other advocacy groups, circulated the Model Family Financial Protection Act (MFFPA) nationally as a set of proposals to strength lending and collection laws. At the time, some states adopted the policies of the MFFPA  and it appears there is going to be an effort to encourage more states to look at the MFFPA again.

Despite industry’s bests efforts to assist consumers during this crisis and that consumers are paying down their debts at much higher rate than ever before, the NCLC’s report is a return to the arguments of old: a solution in search of a problem. Certainly, we cannot ignore the impact a high unemployment rate will have upon consumers. Now is not the time to foreclose consumer engagement but it appears that is exactly what the NCLS’s Report suggests.

Judge Denies Motion for Attorneys’ Fees in FDCPA Case

In a ruling that was spotlighted by Barron & Newburger, a District Court judge in Pennsylvania has granted a plaintiff’s motion to dismiss his own lawsuit and denied a defendant’s motion for attorneys’ fees and costs in a Fair Debt Collection Practices Act case. More details here.

WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: This decision underscores the “high bar” for a court to find that a plaintiff failed to perform a meaningful pre-suit investigation. In this case, the plaintiff sued the defendant on an information-and-belief basis for violations of the FDCPA. After receiving the defendant’s discovery responses, which rebutted the allegations, the plaintiff requested that the defendant agree to enter a stipulation of voluntary dismissal (on the eve of the plaintiff’s deposition). The defendant rejected the proposed stipulation, which provided that each party would bear its own fees and costs. The plaintiff then moved to dismiss his own case with prejudice and the defendant moved for an award of attorneys’ fees and costs. 

The court acknowledged that the plaintiff’s counsel, “likely could have done more to investigate the particular claims”, but still rejected the defendant’s request for an award of attorneys’ fees and costs. The court concluded that the plaintiff did not file in bad faith and found that “the fees and costs from motion practice were either de minimis or the result of” the defendant’s own actions.

Interestingly, the court was not persuaded by the fact this is the fourth case in the past two years that the plaintiff’s counsel filed suit against the same defendant, asserted similar allegations, and then sought dismissal after the defendant noticed a deposition of the plaintiff and served its discovery responses. 

This decision affirms that the FDCPA is not designed to penalize litigants who fail to prove their grievances. 

Colorado Extends Window Limiting ‘Extraordinary Collection Actions’

The state of Colorado has extended its limitations on “extraordinary collection actions” until Feb. 1, 2021, determining that while economic conditions in the state are improving, they remain similar to the conditions when the law was first put into place, while also needing to preserve and prioritize the resources of state and local resources. More details here.

WHAT THIS MEANS, FROM MAKYLA MOODY OF GREENBERG SADA & MOODY: Following a virtual stakeholder meeting and an extended comment period, Colorado’s Administrator of the state’s Fair Debt Collection Practices Act, in accordance with the provisions of SB20-211, has elected to extend the limitations on extraordinary collection actions, until February 1, 2021. 

This extension was widely expected, but it was done over the objection of many industry members and at least one Bankruptcy Trustee. Notably absent from the conversation was the Administrator, Martha Fulford, who elected to remain silent during the entire meeting with her video turned off; raising questions about her actual attendance and level of engagement in the decision-making process. Also absent were induvial consumers, but the consumer attorneys that advocated for the enactment of the legislation did appear and voice support for the extension, relying heavily on antidotal commentary. 

The October 25 Order contains many detailed findings, relying in-part on data published by the National Consumer Law Center and other consumer advocacy groups. Disappointingly, the state’s own statistical data, used by Democrat controlled General Assembly for budget discussions, showing that Colorado’s economy was less severely impacted by the pandemic than originally feared and has rebounded far faster than anticipated was significantly downplayed.

Now with early election results indicating the Democrats will increase their control in in the state Senate, and maintain their extensive control of the House, more anti-collections legislation is expected to be introduced next session; possibly seeking to expand existing exemptions and make the depository account exemption enacted with SB20-211 larger and permanent. Fighting these efforts will be increasing difficult as large out-of-state consumer advocacy groups continue to provide monetary support and skewed statistical information to fuel Colorado’s anti-collection agenda. Nevertheless, our local industry members will rise to the challenge, and welcome any support other parties with shared interests are willing to provide.

Minnesota AG Settles With Hospital Over ‘Unfair’ Bill Collection Practices

The Attorney General of Minnesota has announced a settlement with Hutchison Hospital after it was accused of violating a regulatory agreement between the AG’s office and non-profit hospitals in the state by increasing patients’ payment plans, deactivating payment plans of patients who did not agree to new terms, and pressuring patients to take out loans or use retirement savings to pay off their medical debts. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: This is another great example of the fact that State Attorneys General across the country are cracking down on practices they deem harmful to consumers, with an emphasis on health care. A big take-away here is that the office of the Minnesota Attorney General is keeping, particularly in the age of COVID-19, a focus on enforcing the provisions of Minnesota’s Hospital Agreement. Under the terms of the Hospital Agreement, certain hospitals are prohibited from referring “any medical debt” to a debt collection agency “if the patient has made payments on that debt in accordance with the terms of a payment plan previously agreed to” by a given hospital. When pursuing medical debts on behalf of hospitals in Minnesota subject to the Hospital Agreement (which is most hospitals in Minnesota), this means that collection agencies must keep in mind whether consumers have made any payments on the debts under the terms of payment plans previously agreed to by the hospital. Failure to do so could invite consumer lawsuits and result in regulatory scrutiny.

Judge Denies MTD in FDCPA Case Over Collection Lawsuit

For the second time in a month, a District Court judge in Minnesota has denied a defendant’s motion to dismiss as well as a motion to stay a lawsuit filed by a plaintiff alleging the defendant violated the Fair Debt Collection Practices Act during the course of filing its own lawsuit against the plaintiff in an attempt to collect on an unpaid debt. More details here.

WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: Once again, a double standard is applied to debt buyers and their counsel. One of the many federal claims made by the debtor is that PRA, the current creditor, filed its still pending state court complaint without a valid assignment. PRA argued for a stay of the debtor’s federal case until the state court determines if PRA has a valid assignment. But the federal court has determined that it does not need to wait for a state court ruling. “The conduct allegedly violating the FDCPA is not a speculative, future possibility; it has already occurred. Taking claim one as a representative example again, PRA has already filed its complaint (allegedly) without a valid assignment. Although the state court’s ruling in the collection action could affect the merits of Wiley’s FDCPA claims under preclusion principles, Wiley’s claims do not depend on the resolution of [the state court action].”

In what other area of the law does only one party, here PRA, face penalty under a strict liability statute for bringing a state court action that might not succeed? If the alleged violation of the FDCPA occurred upon the filing of the state court suit, the ability PRA to seek redress with the state court is chilled. Can anyone say viewpoint discrimination?

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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