Compliance Digest – March 15

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.

Appeals Court Upholds Dismissal of FDCPA Third-Party Disclosure Case

Even though its representative may not have followed the exact protocols for placing a location information call, the Fifth Circuit Court of Appeals has upheld the dismissal of a Fair Debt Collection Practices Act case against a collection agency because the call in question did not meet the definition of a “communication” under the statute. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: Kudos to the collection agency for winning the case. Nevertheless, this case is most likely an outlier. Many other courts have concluded that attempting to leave a message with a third party for the purpose of having a consumer return the call, even if the existence of the debt is not disclosed, constitutes a communication. This is the very essence of the Foti opinion and the progeny of cases emanating from it. There are always a few exceptions, such as Zortman, but in that case the individual consumer was never mentioned by name. The Limited Content Message created by the new Rule is specifically designed to develop a mechanism for leaving a message, identifying the consumer by name, and not disclosing the reason for the call. It required a Rule to ensure protection for collection agencies under these circumstances. The scenario outlined by the case is not a model and agencies should simply end the call instead of leaving a message in order to avoid litigation.


Judge Grants MSJ For Defendant in FDCPA Case About Pre-Confirmation ID

It’s the collection industry’s version of the chicken-and-the-egg. A consumer refuses to confirm his or her identity because the collector will not go into detail about a collection call, but the collector can not go into detail until the consumer’s identity is verified. Collectors have to stick to their guns in these cases and a District Court judge in Maryland just provided some additional ammunition for collection agencies. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Making collection calls is like fishing in your local lake. Most of the time you’ll come up empty. But, once in a while you’ll catch one (a debtor that is willing to speak to you and wants to make arrangements to pay off his debt) which encourages you to keep throwing out the line. Equally likely there’s always the chance that you’ll hook an old tire or someth ing similar. When you hook that old tire, you need to know how to release your hook causing the least amount of damage to your lure.

In Mayhill v MRS BPO, LLC, the collector went fishing and caught the old tire, also known as a Sergei Lemberg client. Happily, the collector disengaged with minimal harm (notwithstanding legal fees incurred to litigate to vindicate) when he was faced with a continuing common problem: getting a debtor to identify themselves, and if they refuse, how to get off the phone. Prior to ending the call, the collector stated he was calling from MRS Associates, and when asked said MRS was a financial services company. That exchange caused Plaintiff “a great deal of confusion, frustration, and distress” and she suffered and continue[d] to suffer from humiliation, anger, fear, frustration and embarrassment.” Seriously? It’s tough to read that and not react. 

In a generally favorable decision, the following excerpt in a footnote is troubling:

Although the parties treat the call as being with a third party because Plaintiff did not confirm her identity, the ambiguity of her response — she does not affirmatively deny that she is Latrisha Turner, leaving it unclear whether the agent was addressing Plaintiff or someone else — raises some question about whether the situation is more like a voicemail, which could be heard by either the consumer or a third party, than a conversation with a third party. If true, Defendant MRS may have been subject to the obligation to provide disclosures under § 1692d(6). Id. at 3. (emphasis added)

It’s not bad enough tying to figure out whether to leave a message on a machine, and if so, what to say? The wrong answer to the above posed question could lead to real mischief. 

Not to close on a down beat, the Court utilized a “materiality” standard, i.e. could the collector’s response have affected Plaintiff’s “ability to intelligently choose her response,” in determining whether identifying itself as a financial services company was a violation of §1692(e)(10), a deceptive practice, noting that it did not cause Plaintiff to identify herself. The court also posited: “Nevertheless, the general principle stands that courts may take into account prior communications in determining whether a party is likely to be misled by a given statement.” Useful in those cases where a collector forgets to identify itself as a debt collector on the 12th letter or the 14th phone call to the same debtor.

Defective Summons in Collection Lawsuit Equates to FDCPA Violation, Judge Rules

A District Court judge in Minnesota has granted a motion for partial summary judgment filed by a trio of plaintiffs in related cases and denied the defendants’ motion for summary judgment after it was sued for violating the Fair Debt Collection Practices Act because it allegedly violated civil procedure laws in Minnesota when it filed collection lawsuits against the plaintiffs. More details here.

WHAT THIS MEANS, FROM LARRY LASKEY: Whenever a court tells you that “[i]n conducting its analysis, the Court bears in mind that the FDCPA is a remedial, strict liability statute which was intended to be applied in a liberal manner”, you know what follows is probably something you could have seen coming only if you adopted the perspective of a creative, yet least sophisticated, consumer about to take advantage of a highly technical, strict liability statute. In that respect, this case does not disappoint.

The Summons did give an address within the state for in person and mail service required by the rule, even telling the plaintiff which one to use for in person service and which one to use for mail. However, it also said the consumer must send the Answer to a North Dakota address, and on that the plaintiff, and the Court, seem to have hung their respective hats. Though the intent may have been to meet the in-state address requirement, and argument could be made it did, that plus $4.45 will get you a Starbucks grande white chocolate mocha, but not relief from an FDCPA claim.

We’ve all probably done it at some point; fill out the “court forms” and then move on to the substance. This decision suggests a form’s not just a form and, as is so often the case with the FDCPA, taking a closer look through the lens of “it’s not what you meant, it’s what you said” to an unsophisticated (but creative) consumer never hurts.

Judge Grants MSJ for Defense Against 31 of 32 Plaintiffs in FDCPA Case

A District Court judge in Indiana has largely granted summary judgment in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act because it allegedly contacting individuals who indicated they were represented by an attorney and wanted communications to cease. Of the 32 plaintiffs, 29 of them were stipulated to be non-testifying and the judge dismissed those claims because those individuals could not establish their debts were incurred for consumer purposes. Two of the remaining three plaintiffs had their claims fail because the legal service that represented them was not licensed to practice law in the states in which those plaintiffs lived and because the plaintiffs notified the original creditor — and not the debt collector — of the request to cease communications. The judge determined there were genuine issues of material fact related to one plaintiff, which was the only claim to survive the defendant’s motion for summary judgment. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: Ok, celebratory aspects of the case first: the court found reasons to bounce the vast majority of the claims. And on grounds that are beneficial to the industry in future lawsuits. Perhaps most importantly, this case reminds us that the plaintiff bears the burden of proof to establish a claim under the FDCPA. It’s sort of amazing, but in a not insignificant number of FDCPA cases the consumer-plaintiffs or their counsel will fail to establish a fundamental aspect of their claim and effectively show themselves out of the courthouse. The take home message? Where reasonable, insist that the plaintiff prove their claim.  Pretty basic, but worth repeating.

This decision further underscores issues that may arise with the inter-jurisdictional practice of law in consumer cases, including the inefficacy of a “cease” demand from a lawyer not licensed to practice law in the consumer’s jurisdiction. A similar principle has been applied on fee petitions to bar the plaintiff’s attorneys from recovering fees billed by lawyers in their firm who did not notice an appearance in the case or were not licensed in the forum court.  Keep an eye out for these tactics in your cases as well.

Finally, the court reaffirmed the proposition that a “cease” demand to the creditor is not effective as against the debt collector. Again, rudimentary stuff, but nice to see the law applied.

Now, let’s talk briefly about the underlying facts of the case and the practical considerations they entail. The 32 plaintiffs were represented by a Chicago-based legal service called Legal Advocates for Seniors and People with Disabilities (“LASPD”).  The service writes letters of limited representation accompanied by a refusal to pay and explicit cease communication demand and delivers them to their clients’ creditors and collectors. Although LASPD disclaims representation as to any lawsuits filed or negotiations concerning their clients’ debts, the legal service nonetheless purports to represent their consumer clients concerning the attempted collection of  their debts.

Law school clinics, legal aid services, and other organizations across the country send similar letters with great frequency. There has been some debate in the industry about how to deal with these “limited notices of representation.” In my view, the answer is easy: stop contacting consumers after you get letters from these organizations. Typically, the consumer must meet certain income (low) criteria to be eligible for representation. Why chase after someone who is unlikely to pay and is represented by counsel that has demonstrated they will sue.  All risk, no reward there.

In sum, the defense did a great job getting the vast majority of this case wiped out but, as with all cases (even the successful ones), it costs money to score the points discussed above. It is worth considering whether taking a more conservative approach upon receipt of “limited representation” notices from indigent legal service organizations is the more cost-effective approach.

Judge Denies Motion to Certify Class in FDCPA SOL Suit

A District Court judge in Delaware has denied a motion to certify a class in a lawsuit that alleged a collector violated the Fair Debt Collection Practices Act by falsely representing the legal status of a debt when it sent settlement offers on time-barred debts without disclosing that the statute of limitations had expired. More details here.

WHAT THIS MEANS, FROM COOPER WALKER OF MALONE FROST MARTIN: This case solidifies what we already know in the collection industry — if you’re dealing with an opposing counsel you know is willing to try to certify a class (many of these plaintiff attorneys are not), then you have to get your litigation counsel to spend time early on determining what, if any, holes are apparent in the plaintiff’s class definition. Here, the plaintiff sealed her fate by not narrowing the type of debt at issue in her class definition. Remember that there can be instances where it makes since to fight the class issue on the front end of the case through a Motion to Strike Class Allegations.

Judge Grants MSJ For Plaintiff in First Amendment Challenge to Kansas Card Surcharge Law

A District Court judge in Kansas has granted a plaintiff’s motion for summary judgment after it was sued by the state Attorney General for allegedly violating a state law that prohibits imposing a surcharge on transactions that are paid with a credit card, ruling that the law is an unconstitutional restriction on commercial speech in violation of the First Amendment. More details here.

WHAT THIS MEANS, FROM AMANDA PAYTON OF SOLUTIONS BY TEXT: The CardX v. Derek Schmidt case discusses the conflict between commercial speech protection under the First Amendment and a state’s ability to regulate commercial transactions. In the last seventy years, Supreme Court jurisprudence has evolved from refusing to apply First Amendment protections to commercial speech to protecting commercial speech from “unwarranted” government involvement to the four-part test identified in Central Hudson.

The Central Hudson test is a form of intermediate scrutiny, meaning the government must show a compelling state interest in regulating the commercial speech and does not have to choose the least-speech restrictive means. The Central Hudson test and the applicability of First Amendment protection to commercial speech continues to evolve, and based on the current trajectory, it would not be surprising to see strengthened and increased commercial speech protection in the future.   

CFPB Issues NPRM to Delay Compliance With QM Rule; Sues Payment Processor

The Consumer Financial Protection Bureau yesterday made a pair of announcements — delaying the enactment date of a rule that was set to go into effect July 1 and filing a lawsuit against a payment processor and its former chief executive for aiding clients that were taking advantage of individuals by tricking them into purchasing unnecessary services. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: Two recent announcements by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) in the past several weeks are a clear indication that we are going “back to the future” when it comes to Bureau activity. The financial services industry, including the ARM industry, should not be surprise by the fast and sudden change of course at the Bureau. Nonetheless, it will be critically important for participants in ARM industry to pay close attention.

The first announcement by the CFPB to delay the implementation of the Qualified Mortgage Rule (“QM Rule”) caught some industry members off guard because there was little opposition to the rule. For one, Dodd-Frank mandated that while GSEs, like Frannie and Freddie were exempt from qualified mortgage requirements, which required a 43% debt-to-income ratio, that exemption was set to expire.  CFPB proposed an alternative pricing method or QM patch as a substitute. Now by delaying the implementation of the patch, the CPFB has effectively allowed the GSEs to continue down the path of high risk loans that will still be considered qualified. Not only is this decision contrary to Dodd-Frank’s mandate, but it thrusts the mortgage market into volatility at a time when it has been greatly disrupted due to COVID and the CARES Act.

The second announcement wan the enforcement action against payment processor, BrightSpeed Solutions. On paper this seemed like a typical CFPB enforcement action on a bad actor that took advantage of elderly consumers. BrightSpeed processed $71 million of payments for more than 100 such companies that the CFPB says were taking advantage of consumers. The CFPB alleged that BrightSpeed knowingly continued to work with those companies even though there were more than 1,000 consumer complaints against them collectively.  

A history lesson of the CFPB’s prior attempts at enforcement actions against payment processors has not always been successful.  In the CFPB’s case against Intercept Corporation, the Bureau’s complaint was dismissed by the District Court of North Dakota because the allegations were thin and conclusory, lacking specific support of consumer harm.  The CFPB also went after a group of payment processors in the Northern District of Georgia in early 2015 who again ignored “warning signs” or actual knowledge of illegal conduct of the companies the payment processors were ing business with. In the Georgia case, the claims against the payment processors were dismissed because the CFPB failed to comply with discovery.

Although the CFPB is moving back to its more aggressive posture against the financial services industry, industry has the benefit of knowing how best to respond with almost 10 years of engagement under our collective belts. First and foremost industry, including the ARM industry, must revisit and reassess compliance procedures in light of the expected headwinds and questionable rationale by the Bureau. In the event of a supervision and examination, cooperation with the Bureau is always the best place to start, however history tells us that when appropriate and after careful consideration with counsel, whether internally or externally, opportunities to challenge Bureau activity may be available and should be considered.  

PRA Group Discloses CFPB Looking Into Possible Violations of Consent Order

PRA Group announced in a filing with the Securities and Exchange Commission last week that it is defending itself against allegations from the Consumer Financial Protection Bureau that it violated the terms of a consent order it entered into in 2015 that accused the company of engaging in a number of illegal collection activities. The announcement comes on the heels of the CFPB filing a lawsuit against Encore Capital Group for violating the terms of its consent order, which was entered into on the same day as PRA Group. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW FIRM: The Consumer Financial Protection Bureau (CFPB) has taken additional aggressive action against members of  the debt collection industry. While not disclosing specifically what the violations are, Encore Capital Group (“Encore”) and Portfolio Recovery Group (“PRA”) have both separately announced that the CFPB has attacked them for violating terms of 2015 consent orders. In 2015, the CFPB commenced suit against both Encore and PRA, alleging that they purchased debts that were either inaccurate, lacked documentation or were unenforceable. Encore and PRA both ultimately settled the matters with CFPB, wherein they were each ordered to refund millions of dollars to consumers, stop collecting on debts, and pay millions of dollars  in additional penalties. As part of those settlements, Encore and PRA entered into Consent Orders. Now, five years later, the CFBP alleges that PRA and Encore have violated the terms of the Consent Orders, with the CFPB commencing suit against Enforce in September 2020, accusing Encore for, among others, engaging in collection efforts without the required disclosures. To date, CFPB has not commenced suit against PRA. At this time not much additional detail is public. But, it shows that despite the substantial penalties previously leveled upon the companies, the CFPB continues to seek to hold both entities responsible and continues to actively monitor the debt collection practices. As a result, regardless of entering into a prior agreement all companies should ensure that its compliance and safeguards abide by all CFPB and federal and state regulations.

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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