Compliance Digest – March 1

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 Dismisses Complaint Against Collector For Lack of Subject-Matter Jurisdiction

A District Court judge in Pennsylvania has denied a collection agency’s motion to dismiss a complaint that it violated state law in Georgia and Pennsylvania as moot, instead dismissing the complaint on his own, ruling that the Court lacked subject-matter jurisdiction over the state law claims. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: This case presents a little lesson in civil procedure and reinforces the notion that not all courts are equal. In the United States, we have a system of federal courts enforcing federal laws, and each state has their own court system and series of state statutes. Oftentimes federal and state laws overlap, such as the FDCPA and California’s state version, commonly known as the Rosenthal Act. We all know that litigious consumers will often assert claims against debt collectors under both federal and state law concurrently – throw as much as you can against the wall and see what sticks. State courts are considered courts of general jurisdiction, meaning that just about any type of civil claim can be brought there (whether based on federal or state law). In contrast, federal courts are courts of limited jurisdiction. This means that a plaintiff must demonstrate a proper basis (i.e., jurisdiction) to have and keep a claim in the federal courts. Usually this jurisdictional threshold is met when the plaintiff asserts a claim arising under federal law. Alternatively, federal court jurisdiction may exist where the plaintiff and defendant are residents of different states, and the amount in controversy (damages) exceeds $75,000. This is known as “diversity” jurisdiction. 

In this case, although the facts of the plaintiff’s claim concerned credit reporting, he did not assert a claim under the Fair Credit Reporting Act (a federal law). Instead, the plaintiff claimed that the defendant breached a term of a service contract, and that subsequent inaccurate credit reporting caused him emotional distress. Most claims for breach of contract are governed by state law. Moreover, claims that arise in tort (such as intentional infliction of emotional distress) are also based on state, not federal, law.  The federal judge did not see any way that the plaintiff’s claims touched upon federal law, and without that, the court did not have jurisdiction over the claim. (Of interest here, a federal court may unilaterally dismiss a lawsuit if subject-matter jurisdiction does not exist, even in the absence of a motion to dismiss from the defendant. That is what happened in this case.) 

This wasn’t necessarily a total victory for the debt collector. The federal judge dismissed the lawsuit without prejudice, meaning the consumer is free to re-file his claim in state court and the matter could be litigated there. 


Student Loan Collection Bill Introduced in Colorado Legislature

Legislators in Colorado are moving forward with a bill aimed at overhauling student loan collection in the state, which, if enacted would create several conflicts with the Colorado Fair Debt Collection Practices Act for debt collectors. More details here.

WHAT THIS MEANS, FROM MAKYLA MOODY OF GREENBERG SADA & MOODY: Upon reconvening the 2021 Legislative Session, a plethora of new Bills were introduced in the Colorado General Assembly including SB21-057 Concerning Requirements for Private Education Loans. This Bill seeks to expand the Colorado Student Loans Servicers Act, which was enacted in 2019. Alarmingly, this legislation was introduced before any stakeholder meetings were conducted; significantly hindering participation in the legislative process for industry members and other adversely impacted groups.

As drafted, the Bill expands regulatory coverage to private lenders, creditors, and collection agencies issuing, servicing, or working with loans used in any part to fund post-secondary education, including colleges, technical trade schools, and other occupational training programs, which are not insured or guaranteed under federal law.

The additional notice and documentation requirements contemplated therein will make servicing covered loans much more arduous and complicated, while significantly increasing the liability exposure for all covered entities working in this sector. 

This legislation undermines existing lending processes by mandating the release of cosigners when relatively low thresholds are satisfied as well as the complete discharge of a borrower’s obligation when disabilities arise. Undoubtedly, this will result in making post-secondary education financing much more risky and costly for lenders, servicers, collection agencies and students alike. Further expanding of the gulf between those that can afford to pay for higher education outright versus the majority of students that utilize private loans, along with other funding mechanisms, to access higher education opportunities.

Local industry members are actively engaged in the process, but without stakeholder meetings and more vocal support from a wider group, especially from the post-secondary schools, the opportunities connected with this legislation remain limited. All interested parties are therefore encouraged to reach out to the Bill’s Sponsors and Colorado Senate Education Committee members to voice their opinions on this legislation.

Appeals Court Affirms MSJ Against Debt Buyer in Contract Breach Case

The Third Circuit Court of Appeals has affirmed a lower court’s ruling in favor of a defendant that was sued by a debt buyer for failing to provide the proper information for accounts that were purchased by the buyer because it did not send its emails to the address noted in the underlying agreement. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: This is a case that could fly under a collection agency or debt buyer’s radar as it has no precedential value but I think it serves as an important reminder to make sure adequate processes and procedures are in place to raise issues with placement or sales in accordance with the contract terms. So often, we get comfortable in our relationships that we let the formalities slip. While it’s always best to work things out informally if at all possible, businesses need to maintain processes for formal notifications. Ophrys should remind agencies and debt buyers to review their policies and processes for placements and purchases for each business partner to ensure:

  • A process is in place to review accounts upon placement or sale to ensure they comply with the warranties and representations provided by the seller or creditor;
  • Processes for formal notifications are documented for each business partner;
  • Processes are in place to provide formal notifications where necessary; and
  • A clear tickler system is in place to allow for timely and proper notice in the event informal discussions do not provide appropriate action within any express notice periods. 

Judge Denies Stay Request in FCRA Permissible Purpose Case

A District Court judge in Arizona has denied a motion to have a Fair Credit Reporting Act class-action case stayed against a law firm accused of accessing an individual’s credit report without a permissible purpose pending the outcome of a case before the Supreme Court. More details here.

WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: In this case, the court denied the defendant’s motion to stay the case pending a decision by the Supreme Court because it found that the Supreme Court’s resolution will have no meaningful impact on the present litigation. In its decision, the court criticized the question presented by the petitioner to the Supreme Court, which was “[w]hether 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.” Specifically, the court noted that the issue submitted by the petitioner “is a textbook example of a loaded question” that inaccurately presumes “that the Ninth Circuit held that Article III permits a damages class action where the vast majority of the class suffered no injury, and that Federal Rule of Civil Procedure 23 permits a damages class action where the vast majority of the class suffered injuries unlike anything that the class representative suffered.” The court makes clear that “the Ninth Circuit held no such thing,” but rather, the Ninth Circuit held “that every member of the class did, in fact, suffer an actual injury for purposes of Article III, and that [the plaintiff’s] injuries were sufficiently typical of those suffered by the class for purposes of Rule 23.” After correcting the petitioner’s inaccurate presumption, the court found that the Supreme Court’s resolution will not meaningfully impact the litigation.

The Supreme Court will hear oral argument on March 30 and a decision will likely be issued by the end of this term. Irrespective of the Supreme Court’s finding, it will be interesting to see how the decision is interpreted and applied to class certifications in the future.

Judge Grants MSJ For Defense on 6 of 7 Counts in FDCPA Case

A District Court judge in New York has granted a defendant’s motion for summary judgment on six of the seven counts in a lawsuit claiming a letter it sent to the plaintiff violated several sections of the Fair Debt Collection Practices Act, but denied summary judgment motions from both sides on the remaining count that the plaintiff was misled into believing that an attorney was meaningfully involved in review of her account. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: This case represents more than “half a loaf” when it comes to a victory for the collection law firm. Six counts were dismissed, while one survived. So what’s the backstory? The Plaintiff received a collection letter from a law firm. Plaintiff challenged the letter using a shotgun approach. The court summarily dismissed the Counts alleging the letter (1) failed to state the amount of the debt, (2) failed to correctly ID the correct creditor, and (3) overshadowed the validation rights.

The court’s analysis on these counts is helpful if you are facing such claims. In particular, the court’s reasoning on the dismissal of the “amount of the debt” challenge is interesting. The court made specific note (based on a summary judgment record) that the Plaintiff failed to exercise her right to dispute the debt notwithstanding the validation notice language mirroring the FDCPA on how she could so dispute. This, coupled with her failure to submit any evidence while facing a summary judgment motion — other than an affidavit that baldly stated “I don’t owe the sum” claimed — doomed her challenge based on an alleged failure to state the amount of the debt claim.

The Count that did survive concerned a claim of “lack of meaningful involvement” since the letter was sent on attorney letterhead. The letter did not contain any disclaimers other than a sentence that stated “In making this demand we are relying entirely on information provided by our client.” Plaintiff argued that this statement meant no attorney was meaningfully involved in reviewing the matter before the letter was sent and instead the attorney was just relying on its creditor. The attorneys defended Plaintiff’s summary judgment motion on the meaningful involvement claim by pointing out that the Plaintiff had failed to establish that claim with factual evidence. The court punted in the end deciding that both parties had raised valid theories to support their cross-motions for summary judgment, but neither had presented the necessary evidence to support their theories through sworn declarations. 

The takeaway? Follow the “belt and suspenders” approach whenever possible. Sure, argue Plaintiff has failed to meet her burden but then add on the suspenders by submitting affirmative affidavits/declarations outlining actual meaningful involvement. No doubt the attorneys here will head back to court with a renewed motion on the surviving Count, this time with detailed declarations/affidavits with a likely win to follow. 

Appeals Court Upholds MSJ For Plaintiff in FDCPA Case

The Court of Appeals for the Eleventh Circuit has upheld a summary judgment ruling in favor of a plaintiff who sued a collector for violating the Fair Debt Collection Practices Act because she received a collection letter and phone calls seeking to collect on a debt that was the result of a pending worker’s compensation claim, for which her employer or health insurance carrier should have been responsible for paying. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: The third element of a bona fide error (BFE) defense requires a debt collector to prove that its violation of the FDCPA occurred despite “the maintenance of procedures reasonably adapted to avoid any such error.”  In reviewing the procedures to avoid improperly collecting medical debt subject to workers’ compensation coverage, the 11th Circuit concluded a debt collector relying on its clients to provide information is not enough. If you are relying on a BFE defense in the 11th Circuit, you will need to demonstrate you have internal controls, other than your client’s representations, reasonably tailored to avoid a violation of the FDCPA.

Acting FTC Chair Outlines Priorities

Much has been written about how changes at the top of the Consumer Financial Protection Bureau are going to impact the accounts receivable management industry, but there are two other government regulators that also police debt collectors — the Federal Communications Commission and the Federal Trade Commission. And each of those agencies — like the CFPB — are currently being run by Acting Chairs. President Biden has yet to name his replacements to be the permanent Chairman or Chairwoman of either agency, so the Acting Chairs — Jessica Rosenworcel at the FCC and Rebecca Kelly Slaughter at the FTC — will be in place for the foreseeable future. More details here.

WHAT THIS MEANS, FROM KIM PHAN OF BALLARD SPAHR: In a recent speech, Acting FTC Chair Rebecca Kelly Slaughter stated that, “I am encouraging staff to be innovative and creative to ensure we are using the full panoply of tools available to the FTC in order to bring about the best results in our cases.” However, when Rohit Chopra resigns from his role as a FTC Commissioner to head up the CFPB, Slaughter will be the only Democratic commissioner and could be facing 2-1 votes against her ambitious agenda by the remaining Republican commissioners until additional Democratic FTC commissioners can be nominated and confirmed.

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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