Compliance Digest – February 15

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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.

Motion to Compel Arbitration in FDCPA Class Action Denied Over Lack of Proof That Plaintiff Signed Agreement

A District Court judge in Illinois has denied a defendant’s motion to compel arbitration in a Fair Debt Collection Practices Act class action because it did not prove that the plaintiff actually agreed to the terms and conditions when he signed up for a cell phone contract. More details here.

WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: Anyone who buys anything online is familiar with seeing a reference to terms and conditions (which you all thoroughly read and analyze prior to completing your latest impulse purchase from Amazon). In Gilbert v. I.C. Systems, the collector tried to enforce an arbitration agreement contained within the underlying agreement between the consumer and Sprint. It was contained within the “terms and conditions” on Sprint’s website rather than a provision in a contract signed by the consumer.

Although state law can vary to some extent, unsigned contracts can be enforceable if a consumer’s actions demonstrate agreement with the contract’s terms. This is a fact-intensive inquiry, though, where clicking a box, including terms on a website, or a consumer’s continued use of service is not sufficient proof of an agreement.  Failing to show more, such as proof the consumer even saw and read the terms and conditions on the website, is why the Court denied the motion to compel arbitration. 

The takeaway from this case is that the enforcement of any agreement requires either a signed contract or proof the consumer acted in a way demonstrating awareness and agreement with the term requiring arbitration. While it is far more expedient for a creditor to only include terms and conditions on a website or requiring a one-time box to be checked, doing so is unlikely to make a term enforceable. In other words, when you clicked the box saying you agreed to the terms and conditions when buying your new avocado pit remover, you are probably not bound by them.


Class-Action Complaint Filed Against Broker, Debt Buyer Over Tribal Loans

A class-action lawsuit has been filed in Pennsylvania against a debt buyer, accusing it of violating the Fair Debt Collection Practices Act by attempting to collect on a payday loan it acquired that had an interest rate that was illegally high. The debt buyer, as well as the broker that originated the sale of the accounts, are also accused of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act by conspiring with the payday lender that originated the loan in what is known as a “tribal lending” scheme. More details here.

WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER: Cases like this intrigue me because they turn so completely on the consumers winning their “case within a case,” meaning that unless the consumer can prove the debt was illegal, the rest of the case often falls by the wayside. In many cases, cognizant of the FDCPA’s limitations in its application only to debt collectors, consumers only sue the collectors tasked with recovering the balances due on these loans.  Here, though, the consumer takes a different approach by suing both the servicer and the originator together, and by putting the legality of the loan squarely at issue for the court’s determination. With online lending becoming more and more accessible to more and more consumers, and with the country consisting of a patchwork of a wide variety of state usury laws, this case will be an important one to watch.

Judge Grants MSJ in FDCPA Case Over Disputed Debt

A District Court judge in Arkansas has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case after it was accused of engaging in harassing behavior by sending the same verification letter twice in a month in response to two dispute notices sent by the plaintiff and for not including all the information the plaintiff requested in his dispute. More details here.

WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT: Plaintiff’s Counsel in the Johnston case was definitely overreaching and I’m glad the court didn’t bite. The case actually raises a couple of different issues that agencies face. First, there is the issue of multiple dispute notices. On some accounts, we receive up to five different requests for documentation. It can be the same exact letter sent multiple times or each letter may have a different tweak. Regardless, it leaves my Consumer Satisfaction Team trying to figure out when they have truly met their obligation to the consumer. Similarly, another issue we face is what counts as “proper” proof of debt? Although some jurisdictions have delved into this issue (NY substantiation is a fun example), agencies still have a dilemma when deciding how much they need to provide a consumer as proof of debt.  For consumers that truly seem to have a valid concern, we have no problem going back and forth with our client to help them.  The decision is much harder when we are force fed multiple form dispute letters found on the internet, and the consumer’s intentions are disingenuous. It seems like Defendant had solid processes in place to handle the latter, and I think that helped sway the decision in their favor. 

BK Reform Bill Introduced in Senate to Make it Easier to Discharge Medical Debts, Student Loans

A quintet of Senate Democrats have introduced a bill that aims to make it easier for consumers to have student loans and medical debts discharged when filing for bankruptcy protection. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: This is just not as simple as it sounds. Frequently, people will have debt before they experience medical problems. Eliminating the credit counseling requirement could be detrimental to people who could use this service to develop better money management skills. Additionally, this is not a government program – debtors are the ones that will be paying for the services that the courts discharge who may also be having their own pandemic related financial issues.

Bill Introduced in House, Senate to Amend FCRA, FDCPA Over Collection of Medical Debts

Legislation was introduced in both the House of Representatives and the Senate yesterday that seeks to amend the Fair Credit Reporting Act and Fair Debt Collection Practices Act with respect to how medical debts are collected. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: Legislators in both the House of Representatives and the Senate have introduced a bill, called the Medical Debt Relief Act, which seeks to amend the Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) with respect to how medical debts are collected. The legislation would amend the FCRA to implement a one-year waiting period before medical debt will be reported on a consumer’s credit report, and would amend the FDCPA to provide a timetable for verification of medical debt, among other changes. 

While the bill aims to prevent Americans from having to file for bankruptcy protection as it relates to medical debt, ultimately, the one year moratorium has the potential to significantly distort a borrower’s debt picture, leading to inaccurate underwriting models, potentially driving up the cost of credit, as creditors try to guess at the amount of one of the most common types of debt in America. Ultimately, this likely won’t help consumers and the solution lies in the underlying causes of medical debt in the first place. Indeed, it would be curious to see the data that negative credit reporting causes individuals to file for bankruptcy. 

Finally, how is the industry to implement this when medical debt is often incurred by credit cards as a matter of last resort lending for individuals. Would credit card companies or unsecured consumer lenders in general be required to determine the purpose of the debt incurred and then make a decision regarding reporting? While seemingly well-intentioned, the practical implications of the bill ultimately will lead to higher costs to consumers with very little material benefit. 

AGs Seek to Stop Settlement in FDCPA Processing Fees Case

A group of 33 state attorneys general are attempting to intervene and stop a settlement in a class-action Fair Debt Collection Practices Act case in which a mortgage servicer was accused of charging processing fees when taking payments over the phone or via its website. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Plaintiffs and Defendants have come to an agreement as to how to resolve the pending class action regarding convenience fees charged by Defendants in certain circumstances. They have run into a roadblock: a group of 33 state attorney generals who wish to stop the settlement going forward as currently set. They claim that the settlement is contrary to public policy and certain state laws and are asking the Court not to grant preliminary approval of the class settlement. [1] At this time we don’t know where this story will end and therefore it has no value to opine on the merits of either the proposed settlement or the opposition filed by the AGs.

However, there are some takeaways at this point. One of the preliminary steps when seeking court approval of a class settlement is to send out a “CAFA” [Class Action Fairness Act] notice to the attorney general(s) of each state where putative class members reside to alert the AG’s office that the parties are about to enter into a settlement which will affect the rights of citizens of that state without their direct involvement. The notice includes the basic pleadings and most importantly a copy of the settlement. In the majority of cases that is usually the end of it. In this case however not only was that not the end, the fact that the CAFA Notice engendered the response it did was eminently foreseeable. A review of the docket reveals multiple oppositions were previously filed to the proposed settlement by various pro-consumer groups as well as individual putative class members. Just maybe, when the objections started coming in, it might have made sense to set up a conference of all the interested parties while the named Plaintiffs and Defendants still had control over their respective fates and perhaps modified the terms of the agreement.

So what does this mean? When entering into a class settlement consider not only how the Court will view it, but be cognizant if there is anything in the proposed terms that might rile up any of the pro consumer groups or catch an AG’s eye.

As a final comment, based on a review of the briefs, I won’t be surprised if the settlement blows up and we have another decision regarding convenience fees.

[1]  The initial brief of Amici Curiae seeking leave to file opposition referenced on February 3 on was subsequently granted and a briefing schedule as to the AG’s opposition was been set – pursuant to the ECF docket a response was due on February 8, but as of this writing has not yet been filed.

TransUnion Makes Case to Decertify Class in $40M FCRA Case

A credit reporting agency has filed its brief with the Supreme Court as it seeks to have a class of plaintiffs decertified in a Fair Credit Reporting Act case that will answer the question of whether every member of a class must have Article III standing in order to recover damages, which could significantly impact the future of class actions across the country. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: There is little doubt that the Supreme Court’s ruling in Ramirez v TransUnion is going to be a big deal in consumer and class action law. The question presented is: “Whether either Article III or Rule 23 permits a damages class action where the vast majority of the class suffered no actual injury, let alone an injury anything like what the class representative suffered.” The case is thus the next step in Article III law and focuses on standing for the class members.

We recently have seen what the Seventh Circuit did to FDCPA cases when it applied the Article III standards to the named plaintiffs, dismissing 6 cases in the past two months. If the Supreme Court in Ramirez agrees with TransUnion’s arguments, it could make certifying a class much more difficult, especially in the consumer arena.

The case has garnered a lot of attention. This week a dozen amicus briefs were filed, including on behalf of ACA International, eBay, Facebook, Google, Home Depot, the U.S. Chamber of Commerce and others. Oral argument is set for March 30, and there should be a ruling by the 4th of July. Hopefully the industry will have something extra to celebrate.

CFPB Acting Director Wants to ‘Preserve Status Quo’ on Debt Collection Rule

In remarks posted yesterday to the agency’s website, Dave Uejio, the acting director of the Consumer Financial Protection Bureau, offered the first sign of what may happen to the debt collection rule, hinting that the enactment of the rule may either be delayed or reconsidered in some form. The remarks were part of a memo directing the CFPB’s Division of Research, Markets, and Regulations (RMR) to take “some immediate actions” in “furtherance of our mission.” More details here.

WHAT THIS MEANS, FROM CHANTEL WONDER OF GORDON & REES: Now that we have a Final Rule from The CFPB, the question on everyone’s mind is, will the new administration make changes to the Rule?

The CFPB’s acting director, Dave Uejio, sparked more confusion when he announced that he was going to preserve the status quo on the Rule. There has been discussion about whether this means that he will try to delay the enactment of the Rule so that the new CFPB leadership can make changes to it, or if it means that the rule will remain the same as it was published in October and December 2020. Even if the CFPB makes no changes to the Final Rule prior to its implementation, the agency’s new leadership team is expected to focus on more aggressive enforcement of the Rule as part of its goal to strengthen and expand the enforcement powers of the CFPB.  

Getting to know the CFPB’s new leadership team is also important in predicting what we should expect from the agency in the coming months. Rohit Chopra has been nominated as the Director of the CFPB by President Biden. Mr. Chopra was previously Assistant Director of the CFPB and has been serving as director of the FTC since May 2018. In his prior dissents to settlements and statements of the agencies, he has taken the position that enforcement is not aggressive enough. One of his main focuses in all his roles has been on the student loan crisis. In a letter to the CFPB regarding the final rule, Mr. Chopra expressed concern that collection agencies would attempt to unbundle student loan accounts in order to be able to make more calls to debtors. Based on his prior comments, this is one area of the Rule we can expect the CFPB to focus enforcement activity on.

These two agency veterans have indicated they will increase the CFPB’s enforcement activity, and they are also expected to focus heavily on assisting consumers affected by the pandemic.

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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