Compliance Digest – December 21

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 Grants MSJ for Defense in FCRA Permissible Purpose Case

In a case that was defended by the team at Malone Frost Martin, a District Court judge in Indiana has granted a defendant’s motion for summary judgment after it was sued for allegedly violating the Fair Credit Reporting Act when it obtained a propensity to pay score for an individual from a credit reporting agency after the individual had filed for bankruptcy protection. In granting the defendant’s summary judgment motion, the judge denied a motion for summary judgment that had been filed by the plaintiff and determined that a motion for class certification was moot. More details here.

WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER: What a refreshing decision! Too often, consumers argue that policies and processes must be “perfect” instead of “reasonable.” This court’s thoughtful and practical analysis of Southwest Credit’s ability to rely on an entirely reasonable process for avoiding the collection of accounts in bankruptcy really drives home the fact that errors don’t automatically equal liability. Additionally, the opinion reinforces an important point: willful violations of the FCRA require a consumer to show reckless disregard of the statute or intentional violation of its requirements. Consumers routinely plead willful violations of FCRA to seek punitive damages, which understandably concerns those on the receiving end of such claims. But the court’s clear take-away message here is that simply making a mistake doesn’t open the floodgates for punitive damages. For other agencies at risk of similar causes of action, Southwest Credit’s approach to this case provides a great roadmap both for giving your current policies and practices a checkup, and for how to respond should you face a similar claim.

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Wisc. Judge Grants MTD in FDCPA Case Over Creditor Name in Letter

A District Court judge in Wisconsin has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because it allegedly failed to correctly identify the creditor to whom a debt was owed in a collection letter. More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: In Fellenz, the court gave us guidance on both the issues of standing and how do identify the name of a creditor. As the standing, it reminded us of the distinction between an incomplete letter that does not provide all the consumer’s statutory rights and a letter that gives incorrect information resulting in the consumer becoming confused. Incomplete information but does not result in any damages does not on its own give rise to standing, but that same consumer has standing when that consumer became confused from an accurate language within the letter. The Fellenz court found that the plaintive in its case had standing because the allegation was that the consumer was confused by an in accurate representation of the creditor’s actual name.

The court found Ms. Fellenz failed, though, to show Stark Collection Agency violated the law by identifying the creditor by initials that the creditor often uses and by wish consumers commonly identify the company. Even though additional information such as a code related to the creditor’s location, no violation was found because the court stated no significant portion of the population would have been missed lead by the addition of the creditor’s location.

The takeaway from this case is that incomplete information can support a standing defense but not inaccurate information (at least in the Seventh Circuit). The other takeaway is that agencies can identify creditors by names other than the correct legal name as long as it is a name by which most consumers would identify the consumer.

Appeals Court Upholds Ruling for Defendant in TCPA Re-Consent Case

The Court of Appeals for the Eleventh Circuit has affirmed a lower court’s ruling in favor of a defendant that was sued for violating the Telephone Consumer Protection Act by contacting an individual on his cell phone using an automated telephone dialing system because the plaintiff re-consented to being contacted by filling out a form on the defendant’s website. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON MESSER: In Lucoff v. Navient Solutions, the Eleventh Circuit seems to have gone out of its way to send a strong message to the plaintiff.

In this regard, Lucoff was a TCPA case, and the Eleventh Circuit affirmed the lower Court’s summary judgment for Navient after engaging in a fact-intensive analysis of whether the plaintiff consented, then revoked the consent, and then re-consented to receive the telephone calls at issue. A good result for Navient and the industry. 

However, it is interesting that the Eleventh Circuit chose to engage in the aforementioned consent-analysis, when it also had two simpler reasons to dismiss the plaintiff’s claims at its disposal.

Earlier this year, the Eleventh Circuit held that only dialing systems which use a “random or sequential number generator” fall within the purview of the TCPA.  Glasser v. Hilton Grand Vacations Co., 948 F.3d 1301 (11th Cir. 2020). Because very few if any dialers today use a “random or sequential number generator”, the Eleventh Circuit could have likely dismissed the Lucoff plaintiff’s claims with a brief reference to its previous Glasser decision. But, it declined to do so.

Also this year, the Eleventh Circuit held that consent provided as part of a bargained-for contract cannot be revoked.  Medley v. Dish Network, LLC, 958 F.3d 1063 (11th Cir. 2020). In Lucoff, the plaintiff had entered into a class action settlement agreement years earlier, by which he was deemed to have provided express consent to receive Navient’s subsequent calls. It would have been easy for the Eleventh Circuit to dismiss his claims based on its prior ruling in Medley.  But, it declined to do so, as well.

Regardless of what the Court’s motivation might have been to avoid the “easy route,” Lucoff is certainly a welcome addition to the Federal Circuit-level case law regarding the TCPA.

LESSONS LEARNED – Many times, consumers re-consent to be called in a variety of ways, such a Lucoff did here. Such ways include filling out an on-line web form (as Lucoff did), or by calling into a company and confirming with the agent they speak to that the company has “consent” or “permission” to call at the phone number the consumer used to call the company. This also emphasizes at that having company protocols and procedures for the training of agents to capture consent, and documentation thereof, is critical. These are key issues that can help minimize the risks of potential class action lawsuits.  

The Journey continues!

CFPB Sues Debt Collector

The Consumer Financial Protection Bureau yesterday announced it had filed a lawsuit against a debt collector, accusing it of violating the Fair Debt Collection Practices Act and Consumer Financial Protection Act by sending collection letters using the letterheads of its clients — district attorneys’ offices — to collect on outstanding debts without identifying itself or that the letter is coming from a debt collector. More details here.

WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT: This lawsuit raises an interesting situation in terms of federal and state law differences. Under the FDCPA, collection agencies have to identify the communication is from them. However, under some state statutes, an agency can act as an extension of the District Attorney and/or Attorney General’s office when designated as such under the statute and they are given the authority to use state letterhead. So, the ultimate decision is going to come down to whether the agency was used more of an administrative vendor to the state per their statutory allowances or whether they were truly acting in a debt collection capacity under FDCPA definitions. I’m glad the CFPB brought suit on this one instead of just working through a consent order so we can see how this plays out in front of a judge.

CFPB, State AGs Reach $85M Settlement With Mortgage Servicer

The Consumer Financial Protection Bureau yesterday filed a lawsuit and a proposed stipulated judgment that will result in nearly $85 million in redress and penalties paid by a nationwide mortgage servicing company that was accused of engaging in unfair and deceptive acts when it failed to honor loan modification agreements it had entered into with borrowers. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Nationstar Mortgage, LLC is the fourth largest mortgage servicer in the country. It has done business as Mr. Cooper for over two years. As a mortgage servicer, it is has many layers of federal and state regulators, and functions in a space subject to a complex network of laws.

After a few years of investigations by the regulators, Nationstar appears to have resolved all potential regulatory actions against it for conduct from 2012 through 2016, which period included almost 40,000 homeowners. The price is $91 million – $85 million in recoveries and $6 million in fees and penalties. The regulators involved are the CFPB, attorneys general from 50 states and Washington, D.C. and Puerto Rico, plus 53 different bank regulators.

As often happens in these scenarios, it reached agreements with the regulators without having to litigate the matters in court. Instead, the regulators filed complaints and then the parties filed stipulated judgments that reflected their agreements.

Sen. Warren, Rep. Nadler Introduce Bankruptcy Reform Bill

Sen. Elizabeth Warren [D-Mass.] and Rep. Jerry Nadler [D-N.Y.], the chairman of the House Judiciary Committee, this week introduced a bill in Congress that would overhaul the consumer bankruptcy process in an attempt to “simplify and modernize” the process, according to a press release announcing the proposed legislation. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The Consumer Bankruptcy Reform Act of 2020 (CBRA) proposed by Sen. Elizabeth Warren and Rep. Jerry Nadler, through separate bills in the House and Senate, are the more significant reform proposals since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The American Bankruptcy Institute’s (ABI) Commission on Consumer Bankruptcy issued a report last year with recommendations on consumer bankruptcy reform. The ABI’s report offered a balance approached to reform. Other than the dischargeabilty of student loans, the CBRA did not adopt the many of the recommendations of the ABI.

Probably the most significant reform is to replace Chapter 7 and 13 petitions with an all-new Chapter 10 petition available to consumers with debts less than $7.5 million. The decision as to whether file a Chapter 7 or a 13 is based upon many factors the most important of which is a consumer’s economic situation. This proposal appears to be a bit of a  “one-size fits all”.

The ARM industry should pay special attention to a few other provisions of the CRBA. First, amendments to section 523 would provide for the discharge of both private and federal student loan debt. Although the text of either bill has not been published as of the writing of this article and the requirements for discharge are not known, this could have a significant impact on the collection of student loan debt. Second, the CBRA takes direct aim at consumer protection law by proposing an “unclean hands” provision which disallows claims if the claim holder violated a federal consumer financial law. It is unclear whether a violation of the law must be judicially determined. Finally, the FDCPA would be amended, to override the Supreme Court’s decision in Johnson v. Midland, and that the filing of a proof of claim on a time-barred debt or collecting on a debt that is discharged would be unfair practices. 

Industry will need to look at these proposals very careful. Congress did not address bankruptcy specifically in the FDCPA and there could be unintended consequences if the FDCPA is allowed to be amended by the Bankruptcy Code, which expressly prohibits collections and communications with consumers once filed.   

While it is unlikely that the CBRA will become law in this current Congressional session, it is fully expected that it will be introduced in the 117^th Congress.

Settlement Reached With Blind Patient After Collection Letters Not Sent in Braille

A healthcare provider has reached a settlement in a lawsuit that accused it of violating the Americans with Disabilities Act by not sending collection letters to a blind patient in braille, as the patient requested. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: After contracting to collect debt for a client, sometimes, it is learned that the debt placed in collection is different than anticipated. Here, although the claims are largely based on violations of federal disability laws, recall section 1692f of the FDCPA provides a general prohibition of unfair means to collect a debt. Consider periodically checking with clients, collectors, and back office personnel to ascertain if accounts placed in collection are different than anticipated (i.e., consumer accounts discovered in a commercial placement file) or there are accounts requiring special handling, like in this case.   

CFPB Fines Collector $204K For Collecting Without Proper Licenses in Three States

The Consumer Financial Protection Bureau yesterday announced it had entered into a consent order with a debt collector, ordering it to pay $204,000 after it was found to be threatening to sue, suing, and demanding payments from consumers in three states even though it did not have the proper licenses to do so. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: The RAB Consent Order is a stark reminder of the multiple layers of regulation facing the receivables industry and the importance of due diligence with respect to state licensure, particularly for those paying the receivables space who do not consider themselves to be debt collectors or collection agencies. Those in the receivables industry should be reviewing their licensure requirements on at least an annual basis in each state (and sometimes, on a more micro level (for example, New York)) to insure they are compliant with all licensing requirements, especially when there has been a change in business model or a change in the jurisdiction’s licensing requirements. The Consent Order further emphasizes that the CFPB views licensure as an issue and that it will enforce it through its UDAAP powers even absent a similar action on the part of the state regulator. This is an issue that the receivables industry should continue to monitor, particular those whose businesses who may be playing in the receivables space but that do not consider themselves collection agencies.

CFPB Sues Online Lender for Violations of Military Lending Act

The Consumer Financial Protection Bureau on Friday announced it had filed a lawsuit against LendUp, an online lender, accusing it of violating the Military Lending Act, as part of a “broader Bureau sweep of investigations of multiple lenders” who might be violating the law. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Servicemembers are afforded special protections in exchange for their service to all of us.  In this case, the Military Lending Act is in focus regarding its protections whenever a creditor lends to a servicemember. Interest rate caps, prohibitions on requiring arbitration, and mandatory disclosures prior to lending are all in play. Here, the CFPB alleges in this suit that the lender failed to comply with all of them. The suit seeks injunctive relief, disgorgement, penalties, etc. The remedies are harsh and designed to hold lenders that fail to abide by the Act accountable. 

The takeaway from this now pending lawsuit is simple. Don’t mess with servicemembers defending our country. 

Rep. Waters Calls on President-Elect to Rescind Debt Collection Rule

Rep. Maxine Waters [D-Calif.], the chairwoman of the House Financial Services Committee, is calling on President-elect Joe Biden to rescind the Consumer Financial Protection Bureau’s debt collection rule, in order to protect consumers from collectors who will “harass consumers over email or text.” More details here.

Rep. Waters Calls on Regulators, Including CFPB, to Halt Release of ‘Midnight’ Rules

Rep. Maxine Waters [D-Calif.], the chairwoman of the House Financial Services Committee, has called on all financial regulators, including the Consumer Financial Protection Bureau, to refrain from enacting “midnight rules” or other administrative actions through Jan. 20, 2021, when President-elect Joe Biden takes office. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: Representative Waters conveniently forgets that Reg. F is the result of almost seven years of effort, data gathering, and consideration by the CFPB that began (and largely concluded) while Director Cordray was at the helm of the CFPB. The data and information gathered from the 2013 ANPR and 2016 SBREFA process, along with a variety of industry and consumer engagement and fact-gathering efforts led by the CFPB, formed the basis for the NPRM published last year. All of this occurred almost entirely on Director Cordray’s watch and that did not change when the CFPB leadership changed under the Trump administration. Indeed, many of the same people who were leading that effort when Director Cordray was at the helm as the same people who ultimately brought Reg. F across the finish line this year. That team poured over and considered years of FDCPA case law, the interests of consumers and collectors, and the mounds of data collected from a variety of relevant stakeholders during the phase of the rulemaking, all of which combined to the NPRM published in 2019. Their conclusions on what does (and does not) make sense to modernize and evolve the FDCPA should not be lightly cast aside or cavalierly disregarded.

Consumers and collection agencies alike need the updating and modernization that Reg. F endeavors to provide. It is necessary to allow collection efforts to incorporate and align with today’s consumer communication preferences. The CFPB spent years gathering data and assessing what makes (or does not make) sense for consumers, collectors, and the collection cycle in general. Rescinding the entire rule will have a detrimental effect on consumers and collectors alike. Nor is that necessary. For example, if it turns out that emails and texts are used in an abusive way – a fear consumer advocates continue to express notwithstanding any supporting evidence – were to occur, the CFPB Director would have the ability to rescind and rework only a portion of the rule. We should wait to see if these “fears” actually are ever realized, which seems unlikely given that the CFPB made clear in Reg. F that the use of emails and texts remains subject to the inconvenient time and place restrictions set forth in the FDCPA and Reg. F, as well as remain fully subject to the FDCPA’s existing prohibitions against engaging in harassing or abusive collection communication strategies seems to undercut those fears. In short, Rep. Waters’ apparent posturing does not reflect or even acknowledge the realities of what Reg. F is, how it came to be, and how necessary it is for consumer and industry alike and I suspect will not be well-taken by more moderate Democrats in the House.

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.