Compliance Digest – January 18

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.

Court Grants Class Certification, MSJ for Plaintiff in FDCPA Case

A District Court judge in Illinois has granted a plaintiff’s motion for class certification as well as a motion for summary judgment in a Fair Debt Collection Practices Act case that hinged on the defendant’s inclusion of an internal notation when it identified the creditor to whom the debt was owed in a collection letter. More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: Debt collection is a complicated business. Some things, though, are not complicated. I call those items, “low-hanging fruit.“ Those issues are easy to understand and address. One example is properly identifying the name of the creditor.

In this case, the collector used an abbreviation rather than stating the creditor’s full name. The court did not even think that was a problem as much as adding “II” to signify this was the second time the debt was placed with the agency. That “code“ is problematic because it arguably confuses unsophisticated consumers. 

Before I go further, I want to make clear it’s easy to make mistakes. As the owner of a collection firm, I make mistakes (for clients reading this, I don’t mean your cases, and for prospective clients, I don’t mean your future cases). What sometimes seems like a good idea is predictively regrettable in hindsight. This is probably an example of that. 

First, using initials instead of the full name of the creditor is a bad idea. This Court seemed to think it was OK, but doing that somewhere else is an excuse to sue you. I understand some collection platform fields are too small to include all of the letters you want, but that’s a problem to fix rather than improperly identifying the creditor.

Second, even if you’re going to shorten the name of the creditor, do not add things, even if doing so is the only way to understand the meaning. Again, this presents an excuse to sue you. And letter violations often result in class actions like in this case (although most class action settlements are pricier than this one). 

In your letters, use the legal name of the creditor, a d/b/a, or another name commonly known to consumers. The name of the creditor is low-hanging fruit. Don’t let it be easy pickings for plaintiffs’ attorneys.


Mass. Legislature Passes Bill Requiring Student Loan Servicer Licensing

In the closing hours of its legislative session, the Massachusetts legislature this week passed a bill that, among other things, will require servicers of student loans to now obtain a license while also establishing a student loan ombudsman office that will be charged with identifying trends, including unfair and deceptive acts or practices. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Massachusetts claims to be the most impacted state by improper or illegal student debt loan servicer conduct. As such, it’s not surprising that 50 organizations signed a letter sent to the Legislature in support of this bill. It included not only student and consumer groups but also about a dozen colleges. The bill clearly has widespread support.

States Sue Bank Regulator to Overturn ‘True Lender’ Rule

A group of eight state attorneys general filed suit yesterday in federal court in New York to block a rule that was issued by the Office of the Comptroller of the Currency that aimed to close a gap in the process of banks selling loans to third parties, such as debt buyers, arguing that the rule allows predatory lenders to circumvent state usury laws. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: The “True Lender Rule,” like its cousin, the “Valid When Made” doctrine, is designed to establish continuity from loan origination through arms-length purchase by third parties. The state attorneys general believe that many entities engage in “rent-a-bank” schemes to fund financial products under the guise of federal banking laws knowing such funders may eventually obtain title to the paper. The OCC believes that such innovating finance arrangements actually help foster credit products and widen the scope of available credit to those most needing credit assistance. The attorneys general have an uphill battle but, they are likely to receive support from Biden Administration officials at some point during the next four years.

46 Hospitals Sue HHS Secretary to Reverse Bad Debt Policy

A group of 46 hospitals have filed suit against Alex Azar, the Secretary for the Department of Health and Human Services, seeking the reversal of a policy that has kept hospitals from receiving $1.4 million in bad debt payments. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF CLARK HILL: For decades there has been an evolution of policies at the Centers for Medicare and Medicaid Services (“CMS” but formerly HCFA) regarding when to “allow” healthcare providers to claim unpaid receivables as “bad debts” on their reports filed with CMS for allowances for, among other things, bad debt and charity care. Years ago there was a presumption of uncollectability if a provider (directly or through a collection agency) had made good faith collections efforts (generally three calls and three letters or statements) and after 120 days from the date the first statement was sent bills remained unpaid in whole or in part. The collectability or not issue depends upon a characterization of facts yielding a determination that there is no likelihood of recovery. Here this lawsuit is an appeal from judgments adverse to these hospitals in which Medicare determined that bad debt still being handled by collection agencies could not be considered “uncollectible” on those Medicare providers’ (the plaintiffs in this lawsuit) cost reports. Oddly the federal regulation appears to contemplate a situation where an account is classified as “bad debt” and is reported on a cost report but is later recovered. Per the federal regulation, “if an amount previously written off as a bad debt and allocated to the program” is later recovered, the recovered “cost therefrom must be used to reduce the cost … for the period in which the collection is made.” Despite this regulation, in this lawsuit the hospitals allege HHS refused to allow them to claim $1.4 million for bad debts still being handled by collection agencies – even though not yet recovered.

The plaintiffs are not strangers to the courthouse. They are members of a family of hospitals owned and managed by Universal Health Services, Inc. (UHS), one of the largest healthcare management companies in the United States, many of whom were successful in previously challenging the now-resigned HHS Director Alex Azar’s determination that when past due patient receivables are still in the inventory of a debt collector they would not be eligible at any age to be considered “uncollectible.” 

In order for a Medicare provider to seek and obtain reimbursement for uncollectible patient receivables the provider must establish, per applicable regulations and Medicare Bulletins – as well as Medicare’s determination at that time, that there is no likelihood of recovery. See, 42 CFR Section 413.89. These federal regulations clearly allow providers to retain collection agencies to assist them in recovering uncollected and charged off patient receivables. Further, as noted above, there generally is a presumption of uncollectability for bills that are unpaid after 120 days from the date a provider mails the first bill to the patient. Per CMS “a provider must establish that reasonable collection efforts were made. In order to claim a bad debt as worthless on its cost report, a provider must establish that the debt is uncollectible when claimed as worthless and use sound business judgment to establish that there is no likelihood of recovery at anytime in the future.” See, MLN Matters # SE0824 (revised 5/19/18) and 42 CFR Ch. 14 Section 413.89. On an off since 1966, if a provider has continued to leave unpaid patient receivables in collections with independent debt collectors CMS has taken the position that a provider cannot deem it to be “uncollectible” until all collection efforts, including those undertaken by collection agencies, have been completed. The bottom line here during an Administration transition will be whether or not the District of Columbia federal court will allow CMS’s decision adverse to these hospitals to stand. During this pandemic hospitals have had their budgets, staffing and resources stretched thin by their need to keep up with the care and treatment of COVID-19 patients. If this federal court upholds CMS’s decision, this case could prompt hospitals to set a time limit on when they recall bad debt accounts from collection agencies to assure they can claim charged off patient receivables to their cost reports to assure the availability of this bad debt allowance.

Auditor Calls Out IRS For Allowing Agencies to Receive Commissions On Unstructured Payments

The Internal Revenue Service has rejected a recommendation from an auditor that recommended the private collection agencies stop being paid commissions when accepting payments outside of formal payment arrangements, saying that it believes it is complying with the law by allowing the agencies to do so. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: An important collection program is the outsourcing federal tax debts to four private collection agencies. There are complicated requirements and extensive oversight associated with the program. A key component of it is that the agencies are supposed to: (1) seek payment in full or (2) establish payment plans to receive full payment in not more than seven years. If so done, the agencies receive a 25% fee. The program has been in place for a few years, about $30 billion in balances have been referred out, almost $540 million has been paid, and there are many payment plans in place. It seems successful.

On Dec. 28, 2020, the Treasury Department’s issued a 60 page report of its audit. There are many favorable comments about the program. However, the auditor was critical that the IRS allowed the agencies to be paid commissions on monies that were paid not as part of a payment in full or payment plan established to obtain full payment (i.e., “unstructured payments”). The IRS believes unstructured payments are proper under the program. The auditor believes that such payments are inconsistent with the law and could be harmful to the taxpayers.

It is interesting to see two agencies arguing about receiving payment of money to the government. This seems like an issue that may be resolved with a change of presidential administrations.

Virginia AG Offers Reminder of New Law Protecting Stimulus Funds From Garnishment

Now that the second round of stimulus checks have started to be distributed, the Attorney General of Virginia is touting a new law that went into effect in late October that will protect those funds from being garnished or seized as part of a judgment. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: A number of state legislative sessions are just kicking off in the new year and proposed consumer protection legislation – particularly as it relates to easing the impact of the pandemic on consumer finances – is likely to remain a front and center topic for the foreseeable future at the state level. Additionally, if the new Congress authorizes another round of stimulus checks, which is a realistic possibility, it also is possible that Congress could protect those funds from collections at the national law. It is important to be mindful that where such payments are protected by law from collection efforts, any attempt to garnish, attach, or possibly even an affirmative suggestion that the consumer could use those funds to pay their debts introduces legal and compliance risk.

CFPB Task Force to Release Report

A task force convened by the Consumer Financial Protection Bureau that was charged with “modernizing” consumer protection laws is due to release its report, with as many as 100 different recommendations. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The debate about the appropriate balance between an active and robust consumer financial services marketplace and the regulatory framework needed to protect consumers has been going on for over 50 years. In 1968, President Johnson formed the National Commission on Consumer Finance (NCCF) which later issued a report in 1972 with recommendations of ways to change and improve a then-growing and expanding consumer financial services industry. Over fifty years later, Director Kathleen Kraninger, formed a Task Force on Federal Consumer Financial Law (Task Force) with the charge of issuing a report (Report) that too would offer recommendations to meaningfully improve consumer protections and the financial services marketplace. In my opinion this was a smart move on the part of the Director. The Task Force Report not only frames the conversation about consumer financial services but also lays out the arguments, both pro and con, as to the role of the CFPB for the coming decade and beyond. Todd Zywicki, Professor of Law at the George Mason University was appointed Chair of the CFPB’s Task Force.

Once of the most striking aspects of the Task Force Report was its consistent reference to the core themes that were articulated in the NCCF report; themes and values that industry and most consumer advocates would still consider important today. For example, the Task Force sees consumer inclusion and empowerment as one of the most critical components of a successful consumer financial marketplace. Another example is innovation. The NCCF recognized back in 1968 that innovation through the use of “computers” would have a significant impact for industry and could benefit consumers as well. In keeping with that theme, the Task Force devotes a large portion of its Report to recommendations regarding innovation and fintech as a way to not only expand and streamline financial services but more importantly provide opportunities for consumers to access credit.

Despite much criticism from consumer advocates and a lawsuit to halt the Task Force’s work, the Report is more than complimentary to the CFPB in addition to providing constructive recommendations like the reorganization of supervision and enforcement to be more market-focused rather than tool-based focused. The Task Force does not make any recommendations that the Bureau should be disbanded or even that it should be run by a commission. The Task Force recognizes that the Bureau is an important and relevant agency that ensures protections for consumers while at the same time ensuring that the consumer financial services marketplace continues to grow and expand to be benefit of all.

Todd Zywicki stops by Clark Hill’s Credit Eco to Go to discuss the Task Force Report. A link to the podcast can be found by clicking here.

FCC Issues Orders Limiting Non-Telemarketing Calls and Requiring Opt-Outs

The Federal Communications Commission yesterday issued two orders, one of which restricts the number of non-telemarketing calls that can be made by non-commercial, commercial, and tax-exempt nonprofit organizations under the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence (TRACED) Act. The other order bestows more power on voice service providers to make sure their networks are not being used to transmit illegal robocalls. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: The FCC ruling that was issued in late December 2020 imposes significant limitations on the exception to the TCPA for artificial or pre-recorded voice calls to landlines. The debt collection and other industries had enjoyed unfettered freedom when leaving such messages since at least 1992. 

The new rules (which go into effect in six months) prohibit debt collectors (and many others) from placing more than three artificial or pre-recorded voice calls to a landline telephone number within any consecutive 30-day period, unless they have prior express consent to do so. Debt collectors must also provide an opt-out procedure. Previously, the TCPA did not subject a debt collector to liability with respect to artificial or pre-recorded voice calls to landlines where there was no consent. The commercial call exemption exempted commercial calls (without advertisements) from the purview of the TCPA’s prerecorded/artificial message prohibitions. However, the FCC has now opened the door for TCPA lawsuits against debt collectors based on prerecorded/artificial calls to landlines.

Certainly, if the debt collector obtains prior express consent to call a landline, the debt collector then can place more than three artificial or pre-recorded voice calls per month. However, as we all know from TCPA litigation regarding calls to cell phones, the consent issue is often complicated and contested. The FCC’s new rules will therefore inevitably lead to more lawsuits. Many debt collectors might decide not to use artificial or pre-recorded voice calls under the new rules to avoid the risk of costly litigation and the burdens of complying with the new rules. The new rules impose the following obligations:  a duty to keep track of how many artificial or pre-recorded voice calls are placed to each landline number every month; to obtain prior express consent to place more than three artificial or pre-recorded voice calls per month; to create an opt-out mechanism; and to ensure that debtors who have opted out are not called. 

The second FCC ruling issued recently does not directly impose any requirements on debt collectors, but instead creates further obligations on voice service providers to prevent illegal robocalls from reaching consumers. The analytics used by the entire chain of voice providers is wreaking havoc for all industries whose business model depends on contacting consumers. 

In sum, the two new FCC rulings make it legally riskier to contact consumers in the manner in which they had been accustomed. Under what we all thought during the past 4 years was a conservative and business favorable FCC Commission turned out to be something quite different and disappointing. Why did the FCC issue these draconian rulings now? The FCC has, as of late, issued some very troublesome and anti-business rules that are going to plague the financial services industries from bottom to top. This just means that our fight and zealous advocacy must continue and flourish in ways we have not done before. En Garde!!!!

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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