Compliance Digest – February 8

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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.

N.J. Judge Partially Denies MTD in FDCPA Class-Action Over Letter to Decedent’s Estate

A District Court judge in New Jersey has partially granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act class-action case, while allowing claims that a collection letter violated the statute to continue because the letter was addressed to the estate of a deceased individual instead of to the executor of the estate and because the letter failed to explain to whom it was referring when it used the word “you” in it. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: This decision presents a disturbing outcome for collectors of “deceased accounts” but folks should remember (1) it is just one case and (2) it is possible to avoid cases like this. In this case, the plaintiff was the executrix of her mother’s estate. The collection letter from Greenspoon Marder was addressed to the “Estate of Isabel Schick” and received by the executrix. The executrix filed a putative class action lawsuit alleging violations of 15 U.S.C. §§ 1692c(b); 1692g(a)(1) & (b); 1692e, 1692e(2)(A), (5), & (10). Greenspoon filed a motion to dismiss based on (1) lack of standing and (2) failure to state a claim. The Court found that the Plaintiff had standing and also that she had stated a claim under 15 U.S.C. § 1692c(b). According to the Court, Plaintiff stated a cognizable claim under § 1692c(b) because that section permits a debt collector to communicate with a “executor, or administration” – but not the “Estate”. This interpretation by the Court is particularly troubling because the majority of estates no longer are administered through formal probate proceedings which means that these estates do not have an appointment of an executor or administrator. 

The other troubling piece of the opinion is that the Court found that by using the word “you” in the text of the validation notice required by § 1692g(a), the Letter was misleading because “the least sophisticated debtor could be led to believe that she could be personally responsible for an estate’s debt.” This appears to create some serious compliance challenges in light of the ruling on directing a letter to an estate. The Court seems to have gone out of its way to ignore the Federal Trade Commission’s Policy Statement on Collecting Debts of the Deceased which was published in 2011.

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Judge Grants MSJ For Defendant in FDCPA Dispute Case

A District Court judge in Indiana has granted a defendant’s motion for summary judgment, ruling that the collection agency was entitled to the Fair Debt Collection Practices Act’s bona fide error defense because a fax that was sent by the plaintiff’s attorney disputing a debt was forwarded to the wrong department. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Bona fide error saves the day! But first, there is another lesson to learn from this case. That is, dump your fax machine. In short, faxes have become the “go to” source for consumer attorneys to lodge disputes with agencies. Ostensibly the consumer is disputing a debt through the attorney. But the reality is that it’s the attorney exploiting a weakness within the agency’s infrastructure. How? The attorney looks for a fax number for the agency and then sends disputes to that number. Why? It’s easy and there’s no postage. More than that, the consumer’s fax machine spits out a “received” confirmation sheet which will serve as Exhibit A in the prosecution of any agency that the attorney deem hasn’t “properly” handled the alleged dispute. So, word to the wise, dump your fax machine (not unlike you dumped your BlackBerry years ago).

As to the claim itself, the fax was received and was processed. The rub was that the person processing it “glitched” when it came to forwarding the dispute (from a lawyer) to the appropriate department. As a result the dispute flag was not run up the credit bureau flagpole. The Agency nonetheless was able to demonstrate the honest error/glitch. So the court granted summary judgment in favor of the agency. The BFE defense saved the agency (unfortunately though, with the attendant costs associated with proving up the defense). A win is a win and this one should be chalked up as such. And now back to the beginning of this summary — the other takeaway from this case is that fax machines within an agency are in effect “loose cannons” that can put a hole in your ship, so give some thought to throwing them overboard once and for all.

NDIL Judge Uses New Standing Rulings to Grant MTD in FDCPA Letter Case

In one of the first cases to reference a series of rulings from the Seventh Circuit Court of Appeals on the issue of plaintiffs’ standing to sue, a District Court judge in Illinois has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act case because the “stress, anxiety, and worry” felt by the plaintiff after receiving a collection letter is not enough for her to have standing to pursue her lawsuit. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: This is another good example of the viability of “standing” arguments in FDCPA litigation. To give some background on this defense, a consumer claim must allege not only that the debt collector violated the law in some way, but also that he or she has suffered a concrete injury in fact – something beyond just loose, conclusory allegations of “I was harmed” or “I was humiliated.” If the consumer does not allege sufficient facts regarding a concrete injury, then the consumer lacks “standing” to pursue the claim in court (since in most instances only injured/damaged litigants can pursue civil claims). This was the rationale in the Supreme Court’s Spokeo v. Robins decision from a few years ago, which has since been applied to claims made under the FDCPA in Bucholz v. Meyer Njus Tanick, P.A. and Macy v. GC Services Ltd. Partnership, and other circuit court decisions. 

In this particular case, the district court went through the standing analysis outlined in Spokeo, which requires a litigant to sufficiently allege 1) he or she suffered an injury in fact, 2) the injury is traceable to the defendant’s conduct, and 3) a favorable court decision would remedy the injury. In the Seventh Circuit (based in Chicago, Illinois and covering Illinois, Indiana and Wisconsin), this standing defense applies regardless of whether the claim is based on a procedural violation (e.g., failure to include required language in a validation notice) or substantive violation (some affirmative act by the debt collector allegedly caused harm). In application, this normally means that a consumer complaint must not only allege a violation of the FDCPA, but also that the violation caused the consumer to take an action (or fail to take an action) he or she would otherwise have done but for the technical violation – such as submitting a dispute in writing. I think the judge in this decision summed up the issue nicely: “confusion” due to a debt collector’s conduct or omission is not an injury, but “confusion” that causes the consumer to pay a debt not owed could qualify as an injury. 

I am fairly fascinated to see these standing arguments gaining traction with courts. When I started my law career, the basic requirement for civil complaints was that a plaintiff only needed to submit a standard notice pleading without much in the way of specifics to survive a motion to dismiss – “the defendant engaged in such and such conduct, and it injured me.” The willingness of courts to dismiss litigation based on standing arguments is surprising, but welcome. 

Judge Grants MTD in FDCPA Case Over Different Internal Account Numbers in Collection Letters

A District Court judge in Indiana has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because the internal account numbers it referenced in two collection letters — seeking to collect the same debt owed to the same creditor — were different. More details here.

WHAT THIS MEANS, FROM KATHERINE O’BRIEN OF UNITED HOLDING GROUP: A consumer received two letters from the same collector with the same balance due, same original creditor name, and same original creditor account number but with two different internal numbers used by the collector on each letter. The consumer claimed the collector was intentionally misleading him in an attempt to collect the account twice due to the two different internal numbers. The court disagreed and granted the motion to dismiss the consumer’s complaint explaining that the differing internal number was not sufficient to confuse the consumer given that everything else regarding the specific account was the same. 

This is a case where the Court found the purpose of the FDCPA and the “unsophisticated consumer” standard was not to allow “unrealistic” or contrived consumer confusion allegations by Plaintiffs’ counsel. This was a good decision by the Court that hopefully prevents similar claims in the future. Letters, however, are always a major source of potential (and often frivolous) lawsuits, so changing them should always be made with care. 

Appeals Court Upholds MSJ For Defendant in FDCPA Vicarious Liability Case

The Eleventh Circuit Court of Appeals has upheld the summary judgment ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act and the Florida Consumer Collection Practices Act because of alleged misrepresentations made by another entity that was collecting on the defendant’s behalf. More details here.

WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: This case is an interesting legal dissection of the age-old issue of whether a creditor can be held liable for the actions of its agent, where the actions of the agent are governed by the Fair Debt Collection Practices Act (FDCPA). The District Court and the Appeals Court both ruled that the defendant [creditor] could not be considered a debt collector under the FDCPA. The Court further identified that a creditor has no liability when allegations are premised upon an alleged violation of a statute that does not apply to creditors. In other words, an entity that does not fall under the definition of a debt collector under the FDCPA is not held liable for allegations that the entity violated any provision of the FDCPA.

OCC Hits Pause Button on New Fair Access Rule

Just two weeks after it announced it, the Office of the Comptroller of the Currency yesterday said it was hitting the pause button on a rule intended to ensure that banks to provide fair access to services and capital — a response to Operation Choke Point — so that whomever is confirmed to be the next Comptroller can make the final decision on whether to move forward with it or not. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: The Fair Access Rule was meant to ensure the provision of “fair access to financial services” as a response to, among other things, the Obama-era program known as Operation Choke Point, in which certain government agencies were “pressur[ing] banks to cut off access to financial services to disfavored (but not unlawful) sectors of the economy.” In response, the proposed Fair Access Rule highlights the need for “quantitative, impartial risk-based standards” and “individual risk assessment and [] management.” Indeed, it highlights the fact that “the Dodd-Frank Act’s articulation of ‘fair access’ as a distinct concept implies a right of individual bank customers, whether natural persons or organizations, to have access to financial services based on their individual characteristics and not on their membership in a particular category of customers.”

A big takeaway here is that the failure of the next head of the OCC to publish the rule could mean continued lack of fair access to financial capital and services for certain companies engaged in what have been deemed “unsavory” activities (e.g. gun and ammunition manufacturers/dealers, fossil energy companies, and other by legally operating businesses). Consequently, a failure to publish the rule could result in continued detrimental impact on certain industries, in particular those in the debt collection space, and the economy at large. Indeed, ARM industry stakeholders continue to see their banking relationships terminated without notice or cause, seemingly just based on their type of business. While President Biden is expected nominated Michael Barr, who helped write the 2010 Dodd-Frank Act while serving under Treasury Secretary Timothy Geithner and is presently dean of the Gerald R. Ford School of Public Policy at the University of Michigan, as the next Comptroller of the Currency, industry participants would be wise to stay informed on whether the next person to head the OCC decides to go forward with the Fair Access Rule, as this person will be in a unique position to implement Biden’s banking agenda, as both the Federal Reserve and the FDIC will continue to be run by appointees from the prior administration. As the rule was painted by Democratic lawmakers as a mechanism to force banks to lend to gun manufacturers and fossil energy companies, and was opposed by the banking industry and consumer advocates, the final rule may ultimately be rejected by the next head of the OCC.

CFPB Releases Special Supervisory Highlights on Response to COVID

The Consumer Financial Protection Bureau has released a special edition of its Supervisory Highlights report, detailing information it received from the entities it regulates about how they have responded to the COVID-19 pandemic. More details here.

WHAT THIS MEANS, FROM VAISHALI RAO OF HINSHAW CULBERTSON: The Bureau’s COVID-19 Supervisory Highlights calls out special attention to federal student loan (FFELP) debt collectors. I expect continued attention to collections in this sector. In addition and more generally, collectors’ who have not yet updated their policies and procedures specific to acts and practices that may be considered “unfair or unconscionable” during the pandemic should begin to implement those changes and train their staff accordingly. I view the Bureau’s report to be a signal for issues that will persist in exams or enforcement actions. Finally, the Bureau references the patchwork of state regulation.

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.