Compliance Digest – December 14

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.

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.

Judge Denies MTD in Suit Filed Against Collector By CFPB

A District Court judge in Maryland has denied a debt collector’s motion to dismiss a lawsuit filed against it by the Consumer Financial Protection Bureau, ruling that even though the Supreme Court found the leadership structure of the Bureau to be unconstitutional, it did not dictate that it lacked authority to bring an enforcement action while under such a structure. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: District courts are beginning to weigh in on the ratification issue framed, but left open, in the U.S. Supreme court’s Seila Law opinion decided in June. Seila Law v. Consumer Financial Protection Bureau, ___ U.S. ___, 140 S. Ct. 2183 (2020). In Seila Law, the Supreme Court held that the CFPA unconstitutionally restricts the President’s ability to remove the CFPB’s Director, but the offending provision could be severed, allowing the agency to “continue to operate” under a Director who is “removable by the President at will.” See id., at 2192. The Court declined to decide, however, whether Director ratification after severance of the removal protection provision, would cure the constitutional defect in pending enforcement actions. See id., at 2208.

Within days of the Seila Law decision, Director Kraninger began filing declarations to ratify the agency’s decision to initiate pending enforcement actions. The effectiveness of those ratifications is now at issue in various district courts. The consensus so far is that the actions may proceed. On November 30, the Maryland District Court denied a defense motion to dismiss, determining that “the CFPB had authority to ratify the enforcement action” and Director Kraninger’s “ratification was proper.” CFPB v. Fair Collections & Outsourcing, Inc., No. GJH-19-2817, 2020 WL 7043847, at *7 (D. Md. Nov. 30, 2020). The next day, a Rhode Island District Court similarly ruled, without citation to the Maryland decision, that “a CFPB enforcement action pending at the time of Seila Law may continue if the action is ratified by the Director” because “ratification is a sufficient remedy for the constitutional violation.” CFPB v. Citizens Bank, N.A., No. 20-044 WES, 2020 WL 7042251, at *7 (D.R.I. Dec. 1, 2020). These decisions are in line with earlier findings that ratification allows CFPB enforcement actions to proceed. See, e.g., CFPB v. Chou Team Realty LLC, No. 8:20-cv-00043, 2020 WL 5540179, at *3 (C.D. Cal. Aug. 21, 2020) (“Any constitutional deficiency” was “cured” by severance and ratification). It remains to be seen whether other district courts still considering this issue will disagree. See, e.g., CFPB v. RD Legal Funding, LLC, 828 Fed. Appx. 68 (Mem) (2d Cir. Oct. 30, 2020) (remanding case to the SDNY to determine “the validity of Director Kraninger’s ratification”).


CFPB Launches Advisory Opinion Program

The Consumer Financial Protection Bureau yesterday announced that it has finalized a program where it will offer advisory opinions — guidance, essentially — to help companies in the financial services industry receive clarity where there may be some uncertainty about how to comply with a certain rule. Along with announcing the policy, the CFPB yesterday issued its first two advisory opinions, one on earned wage access products and one clarifying the definition of certain student loan products. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER: The Consumer Financial Protection Bureau (CFPB) has indicated a willingness to issue advisory opinions. The CFPB not only telegraphed it was willing and invested in issuing advisory opinions in late October, the CFPB has already issued two advisory opinions. One advisory opinion involved earned wage access products, whereby an employee can have access to funds which are repaid from the next paycheck through an employer-facilitated payroll deduction. The CFPB found that this did not involve the extension of credit, which takes the transaction out of the Truth in Lending Act. The other advisory opinion also addressed whether circumstances were covered under the Truth in Lending Act, and the CFPB found that consolidating student loans does fall under the ambit of the Truth in Lending Act. 

There have been many state and federal governmental agencies with the power to issue advisory opinions, but many have chosen not to issue those opinions. However, this change of heard by the CFPB regarding advisory opinions should be seen as a giant leap forward for the ARM industry, if the CFPB truly intends to more freely issue advisory opinions, and if the CFPB continues along this path next year. 

Since the FDCPA was enacted decades ago, the ARM industry has tried to comply with the FDCPA. But with every year that passes, the ARM industry is buffeted by the efforts of the Plaintiffs bar to find new and different interpretations of the FDCPA, that has often been compared to a game of “gotcha.”  We have all heard the lament that if we just knew how to comply with the FDCPA, we would. Well, advisory opinions allows ARM industry participants the opportunity to obtain an advisory opinion, which is significantly less costly than obtaining a judicial opinion after defending a case. The ARM industry should view advisory opinions as a method of curtailing litigation expenses – and not only civil litigation defense costs and settlement costs, but also costs defending CFPB litigation. 

But the ARM industry should watch closely how the CFPB changes in the next year and whether the CFPB will continue to welcome the opportunity to issue advisory opinions. Time will tell.

Judge Grants MTD in FDCPA Class Action Over $0.00 Balance Line Item in Letter

In a case that was defended by Patrick Newman at Bassford Remele, a District Court judge in Wisconsin has granted a defendant’s motion to dismiss after it was sued in a putative class action for violating the Fair Debt Collection Practices Act because it included line items in a collection letter indicating that the plaintiffs owed $0.00 on certain debts, which the plaintiffs claimed was confusing and misleading, in light of language in the letter that said the accounts “have not been paid in full.” More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: This case is relatively unremarkable – it’s another in a line of cases where the courts have found including a charge and marking it as $0.00 simply means that the item referred to, be it interest, late charges, a specific charge and as in the Slomanski letter one of his two accounts had no balance due. There was extensive discussion on the lack of standing issue raised by the defendant which did not succeed.

However what I found most interesting when reading this decision was the brief discussion regarding the attempt by the plaintiff to rewrite the letter in question and the court’s response.

The Slomanski letter included the sentence, “We have been authorized by our client to refer the account(s) listed above to an attorney for the purposes of initiating a lawsuit against you.” A fairly benign statement. The Plaintiff however argued that it was “confusing and misleading on its face.” And why is that? Because, according to the plaintiff, there were secret words only the plaintiff’s counsel could see, “Alliance had been authorized to direct litigation against the consumer with respect to the accounts listed in the Slomanski letter.” The court rejected this stating “The plaintiffs attempt to read into this statement an interpretation that no reasonable unsophisticated consumer would make.” Probably because the consumer, unsophisticated or not, would stick to the actual words on the page.

It is becoming more common to see the plaintiffs’ counsels attempt to insert words and meanings NOT apparent on their face in letter cases. I would argue this was not a case of interpretation. How does the phrase “refer to an attorney” transmute into “direct litigation?” I suggest that this type of conduct is evidence of bad faith on the part of counsel and is an attempt to mislead the court.

There is a second absurd/frivolous allegation. “According to the plaintiffs, this statement “is confusing and misleading on its face,” as evidenced by the fact that, at the time the plaintiffs filed this lawsuit no legal proceedings had been filed in connection with any of the accounts listed in the Slomanski letter.” Maybe I’m just thick, but how could something “clear on its face” depend on a future event? How does having authorization to do an act translate into the act will be performed?

Hopefully pointing out facial absurdities such as discussed above will cause the courts to look a little harder at the merits of some of these FDCPA claims sooner rather than later.

EDNY Judge Denies MTD in FDCPA Case Over Reference to Creditor 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 not properly identifying the creditor to whom a debt was owed in a collection letter, ruling there is enough evidence in the complaint to create a plausible inference that the creditor and debt collector are part of the same company. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: In Sali, the plaintiff filed a putative class action under the FDCPA against the creditor and the law firm that collected on the subject account balance alleging that the collection letter sent was confusing. According to the plaintiff, one of the reasons the letter was confusing was because the law firm was under the exclusive control of the creditor and, therefore, the creditor’s alter ego. The factual allegations in the Complaint included that the law firm consisted of one attorney who was also the creditor’s general counsel, the creditor owned and operated the office address for the law firm, and the creditor’s employees answered the law firm’s office phone number. In response, both defendants moved to dismiss, and as part of their argument, supplied the court with proof of a retainer agreement between the creditor and law firm, as well as a lease showing that the creditor rents office space to the law firm. While the court acknowledged that defendants’ argument may ultimately prevail, documents outside of the complaint that were not referenced in that pleading are irrelevant for purposes of a motion to dismiss. As a result, the court held that the Complaint consisted of enough factual allegations to survive a motion to dismiss. 

This case exemplifies one of the many difficult issues that defendants that have been sued under the FDCPA or a similar statute face when deciding how to defend against litigation filed against them. That is, having evidence that they believe to be dispositive of the claims alleged against them, but being forced to wait until summary judgment to present it to the court. In the meantime, discovery takes place, and the litigation, in many instances, becomes cost prohibitive or requires the disclosure of sensitive information; thereby forcing settlement. In some instances, a defendant may be tempted to move for summary judgment at the outset, but many courts will still allow a plaintiff a chance to engage in discovery in order to respond.  There are also instances where plaintiff’s counsel may not be amenable to considering evidence that defendants voluntarily disclosure to show why litigation should not continue. Given the above, it is essential to know your judge and opposing counsel and to be careful in identifying when in the litigation engaging in motion practice will be the most effective.

Appeals Court Overturns Ruling in Favor of Defendant in FDCPA Case

The Court of Appeals for the Ninth Circuit has overturned a lower court’s ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act by attempting to collect on a debt that had been paid off nearly two years earlier. More details here.

WHAT THIS MEANS, FROM LARRY LASKEY: If an FDCPA claim has legs independent of a bankruptcy issue, it may proceed, (a footnote in the decision gives a simple example, though not determinative in this case, of Manikan’s 1692d harassment claim that was based not on the fact of debt collection efforts but rather on what those efforts allegedly were). However, the court isn’t going to allow an FDCPA action to proceed where the violation depends on whether the bankruptcy discharge order was violated. Otherwise, plaintiff’s would have a “back door” way to assert a private right of action under circumstances where Congress has said such a right doesn’t (and can’t) exist.

Here, the debt was paid before the bankruptcy court entered the discharge order, so the plaintiff wasn’t (and didn’t need to) ask the court to determine if the order had been violated.

FTC Secures $24M Judgment Against Collection Agency

A $24 million judgment has been entered against a collection agency and one of the agency’s co-owners has been ordered to divest himself of his ownership stake in the company that purchased the collection agency in question after it was accused by the Federal Trade Commission of collecting on “phantom” payday loans, “purported” medical debts, and other debts that the agency could “consistently” not verify. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: On November 25, 2020, the U.S. District Court for the Eastern District of Missouri entered a Stipulated Order for Permanent Injunction and Monetary Judgment in Federal Trade Commission v. Midwest Recovery Systems, LLC, et al., Case No 4:20-cv-01674. The allegations in the FTC’s complaint, asserted against the defendant debt collector and three of its officers, state that they engaged in “debt parking,” the practice of placing non-existent or highly questionable debts onto consumers’ credit reports to coerce them into paying. Specifically, the FTC alleged that the defendants: (a) reported debts to credit reporting agencies (“CRAs”) without first attempting to communicate with the debtors to resolve the claims; and (b) reported more than $98 million in unauthorized or fraudulent payday loans to the CRAs. Without admitting any of the allegations, the defendants agreed to an injunction prohibiting further violations and to pay equitable monetary relief in the amount of $24,300,000. Additionally, individual defendant Brandon M. Tumber was ordered to pay $56,748 and to divest his ownership interest in Consumer Adjustment Company, Inc., the entity that purchased Midwest Recovery Systems in 2019.

Midwest Recovery was originally investigated by the FTC based upon complaints. Allegedly, Midwest Recovery Systems received thousands of complaints every month regarding the fake debts parked on consumers’ credit reports. The company’s investigation found that 80% to 97% of the debts were inaccurate or invalid. This case is a good reminder of how important monitoring complaints and tracking root cause analysis – no matter the issue, consumer complaints is the number one source for government investigations.

CFPB Sues Debt Settlement Company

The Consumer Financial Protection Bureau yesterday filed a lawsuit against a debt settlement company, alleging it engaged in abusive and deceptive acts and practices by charging fees before it performed any services and collecting higher fees than it was supposed to. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: The CFPB continues to enforce the law as written (as opposed to striking out under its UDAAP powers). Debt settlement companies operate under very specific rules pertaining to how much they can charge consumers and when those fees are to be paid. Here, the CFPB claims the defendant manipulated those rules to obtain higher fees from its clients. The lawsuit seeks disgorgement (return) of those fees among other relief. The short term gain of charging illegal amounts is often outweighed by having to pay it all back through an enforcement action by a government entity or through a private class action.

Appeals Court Orders Dismissal of FDCPA Case Over Lack of Jurisdiction

The Court of Appeals for the Ninth Circuit has reversed a lower court’s order granting a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case, but only so it could tell the lower court to instead dismiss the case without prejudice because of a lack of jurisdiction. More details here.

WHAT THIS MEANS, FROM PATRICK WATTS OF MALONE FROST MARTIN: The Ninth Circuit emphasized that “[s]tatements that induce no reliance do not impede a consumer’s ability to intelligently respond to a debt collector” and “[w]ithout more, confusion does not constitute an actual harm to Adams’s concrete interests.” The Court based its rationale on the fact that nothing in the Complaint suggests the consumer took or forewent any action because of the allegedly misleading statements in the letters.  This opinion opens the door to possible fact and plaintiff-specific standing defenses in nearly every FDCPA case – even cases based only on 1692g violations. 

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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