Compliance Digest – March 22

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 Grants MTD in FDCPA Case Over Pronoun Usage in Validation Letter

When it comes to Fair Debt Collection Practices Act lawsuits, there are not many claims that haven’t already been made. Plaintiffs and their lawyers have been attacking the FDCPA for years and had pretty much identified all the different reasons why a debt collector could be sued. So when you come across a ruling — granting a motion to dismiss — where the judge says that a plaintiff’s “theory of deception does not appear to have previously been considered by any court,” your eyes perk up and you sit a little bit more upright in your chair as you keep reading. In this case, a District Court judge in New York has granted a defendant’s motion to dismiss after it was sued for essentially playing the pronoun game in a validation letter. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: When will this craziness stop! Pronouns; really?. Well it seems like we are back in grade school checking our grammar. In this case, the attorney behind it thought a buck could be made by attacking a clearly worded initial validation notice. The court wasn’t buying it. So what was the claim?

The involved agency had the audacity to use the word “consumer” throughout the three-sentence validation paragraph standard in all initial notices. For example, the first sentence stated “Unless the consumer, within thirty days after the receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.” Plaintiff (through her attorney bringing the suit) claimed that she was deceived by this statement (and the other two sentences that also referred to the “consumer”) because the word “you” hadn’t been used.

Thankfully the common-sense Judge assigned the case tossed it into the garbage can. He aptly noted “It would be bizarre indeed to read the references to ‘the consumer’ in the Letter as referring to anyone but Plaintiff, the addressee and holder of the alleged debt.” He then concluded that while a least sophisticated consumer may well be naïve, such a “consumer” is not a “dimwit.” Perhaps faint praise, but it’s clear we need more Judges like the Judge who decided this case.


CFPB Rescinds Policy on Identifying Abusive Acts or Practices

The Consumer Financial Protection Bureau yesterday rescinded restrictions put in place by the previous leadership that established a two-part test to determine whether a company had engaged in abusive acts or practices, saying it intends to “exercise its supervisory and enforcement authority consistent with the full scope of its statutory authority,” which, for companies regulated by the CFPB, is as ominous as it sounds. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: Earlier this month, the CFPB rescinded the short-lived “Statement of Policy Regarding Prohibition on Abusive Acts or Practices,” which had been in place since only January, 2020. The rescinded policy provided a framework for interpreting the scope of the CFPB’s authority regarding what is “abusive conduct.”  Congress defined “abusive” acts or practices in Section 1031 of the Dodd-Frank Act, 12 USC § 5331, as those that:

  1. materially interfere with the ability of a consumer to understand a term or condition of the consumer financial product or service; or
  2. take unreasonable advantage of:
    1. a lack of understanding on the part of the consumer of the material risks or costs of the product or service;
    2. the inability of the consumer to protect the interest of the consumer in selecting or using such product or service; or
    3. the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

As justification for rescinding the previous policy, the CFPB noted that the previous policy sparked market uncertainties because the agency was permitted considerable discretion in its application, giving it wide latitude to determine what constituted “good faith efforts” to comply. In addition, the CFPB reasoned that the previous policy did not allow the agency to exercise the full scope of the above-referenced congressional statutory standard; thereby preventing the CFPB from protecting consumers from abusive acts and practices.

Under the previous policy, the CFPB would focus on citing conduct as abusive only when the harms to consumers outweighed the benefits to consumers. In addition, the agency would generally avoid overlap in challenging conduct as abusive where it was relying on all or nearly all of the same facts that the CFPB alleged were unfair or deceptive. The CFPB would also usually not seek certain types of monetary relief for abusiveness violations where a financial institution was making a good-faith effort to comply with the abusiveness standard.

The CFPB now intends to pursue abusiveness claims, regardless of whether they overlap with alleged unfair or deceptive conduct. The agency foreshadowed that it may seek all potential penalties, regardless of whether the company under investigation was sincerely attempting to comply with the abusiveness standard. In taking that position, the CFBP asserted its aim of achieving general deterrence through penalties and other monetary remedies. The CFPB, however, failed to provide new guidance on what it considered to be abusiveness acts, but did state that it “intends to consider good faith, company size, and all other factors it typically considers as it uses its prosecutorial discretion.”

It comes as no secret that under the Biden Administration, the CFPB will be more active than what it was the previous four years. Through rescinding the previous policy, the agency will use its muscle to impose financial penalties on the consumer financial industry. Accordingly, businesses should pay close attention to the actions that the CFPB prosecutes and ensure that the products and services they offer are consistent with how the agency is interpreting what is compliant.

41 State AGs Reach Settlement With Breached Collection Agency

Attorneys general from 41 states have reached a settlement with Retrieval-Masters Credit Bureau, which operated a collection agency under the name of American Medical Collection Agency, stemming from a data breach in 2019 that exposed the personal information of more than 7 million individuals. The company may be liable for as much as $21 million in penalties if it fails to honor the terms of the settlement. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: State AGs have been very active in the data breach enforcement arena, especially when it involves this many individuals and it’s medical and financial information that was compromised. The company timely notified individuals and offered two years of credit monitoring. So why did the AGs slap it so hard? It looks like a lack of or absence of an adequate written security program. Additionally, it looks like the company wasn’t truthful to the medical providers about its security, or lack thereof. Do you use a debt collector? Have you vetted it sufficiently to know whether the collector has adequate security?

Seventh Circuit Issues Another Ruling on Standing; ‘Stress and Confusion’ Not Enough to Sue

The Court of Appeals for the Seventh Circuit is back with another ruling on standing to sue in a Fair Debt Collection Practices Act lawsuit, remanding a case back to the District Court for it to be dismissed after a debt collector was sued for sending a letter to an individual who had notified a previous creditor that she was represented by counsel and was refusing to pay a debt, because the previous creditor did not inform the subsequent collector of the notification. More details here.

WHAT THIS MEANS, FROM COOPER WALKER OF MALONE FROST MARTIN: The industry’s position in the Seventh Circuit has improved once again after Pennell v. Global Trust Management, LLC makes clear that stress and confusion cannot satisfy the injury-in-fact requirement. Pay particular attention to plaintiff’s injury allegations in the Complaint and use the deposition as an opportunity to pin down Plaintiff’s damages. However, always consider when raising the standing issue. If raised too soon (i.e. before the statute of limitations has run) you could find yourself defending the same suit in state court.

Judge Grants MTD in FDCPA Case Over Tradeline Status

A District Court judge in New York has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because of how it described the status of an unpaid debt when it was reported to one of the credit reporting agencies. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: We don’t often see a five-page opinion on a motion to dismiss, so it is fair to say the court made short work of this one. The consumer alleged that the following standard language reflected on her credit report was misleading and falsely threatened legal action: “Account seriously past due / Account assigned to an attorney, collection agency or credit grantor’s internal collection department.” The court noted that “assigned to an attorney” was one of several options for assignment. The information was furnished by a collection agency, not a law firm, so it should have been clear which of the three potential assignments had occurred. Furthermore, the credit report did not describe any actions that an attorney, a collector, or creditor’s internal collection department would take. Therefore, even the least sophisticated consumer would not read this credit reporting language and conclude that legal action was imminent. 

Judge Dismisses Credit Repair Org. Suit Against CFPB, FTC

A District Court judge in Florida has granted a motion to dismiss after the Consumer Financial Protection Bureau and the Federal Trade Commission were sued by a trade association representing credit repair organizations that accused the regulators of overstepping their constitutional authority and that the Telemarketing Sales Rule is unconstitutional. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: This case is interesting in that it highlights the battle raging between credit repair organizations and federal regulators.  In this suit, a trade organization of credit repair companies challenged the constitutionality of the Telemarketing Sales Rule based upon two enforcement actions brought against its members by the CFPB.  On the FTC and CFPB’s Motions to Dismiss, the case turned on a procedural point – subject matter jurisdiction.  The Court held that the claims were time barred  because the Administrative Procedures Act requires actions be brought within six years of their accrual.  What’s important here is the distinction to be made between procedural claims (where the action challenges the adoption of the regulation) and substantive claims (where the action challenges the agency’s authority over a particular party).  Here, the Court held that the procedural claims were time barred because the TSR was first published in the Federal Register in 1995 and any challenge to the FCT’s authority to promulgate the Rule was long past.  As to the substantive claims, the Court seemed to suggest they were both time barred and that there was no injury in fact as no final action had been taken against the plaintiff’s members.  So why is this case important to receivables management companies?  I think its biggest importance is what’s coming – the enforcement of a final debt collection rule and whether it will be challenged on either substantive or procedural grounds. The Court’s decision in NACSO serves as a reminder as to the necessity of particularized pleadings and keeping an eye on the clock!

Appeals Court Overturns Dismissal of FDCPA Suit, But Also Says Defendant Can Invoke BFE Defense

The Ninth Circuit Court of Appeals has overturned the dismissal of a Fair Debt Collection Practices Act lawsuit, ruling that the strict liability of the statute applies when a collector threatens to file a lawsuit outside the statute of limitations window, but emphasizing that such a threat may be covered by the bona fide error defense. More details here.

WHAT THIS MEANS, FROM LAWRENCE BARTEL OF GORDON & REES: The Kaiser decision solidifies the ongoing potential issues with collecting time-barred debts, while providing some good news on the bona fide error front. The Ninth Circuit decision followed the approach adopted in the final version of the Regulation F issued by the CFPB and held that a debt collector is strictly liable for filing suit or threatening suit on a time barred debt. Debt Collection Practices (Regulation F), 86 Fed. Reg. 5766, 5781 (Jan. 19, 2021). The Court also soundly rejected the approach initially suggested in the proposed Regulation F ― that a debt collector can be found liable for an FDCPA violation when threatening or filing a lawsuit on a time-barred debt “only if the debt collector knows or should know that the applicable statute of limitations has expired.” Debt Collection Practices (Regulation F), 84 Fed. Reg. 23,274, 23,329 (proposed May 21, 2019).

Importantly, the Kaiser decision reiterates the need to ensure that we conduct a detailed analysis of the statute of limitations before threatening or filing suit in an attempt to collect a time-barred debt. It is imperative, when conducting your statute of limitations analysis, to consider the application of different potential statute of limitations, whether it is the UCC’s 4-year statute of limitations at issue in this case, or whether there is a choice of law provision, conflict of law or applicable borrowing statute. Additionally, from a compliance perspective, this decision also reiterates (1) the importance of not using language in your letter that could be deemed a threat of a lawsuit when collecting a time-barred debt and (2) the importance of using the out of statute disclosure. 

However, the decision relating to collection of time barred debts was not all bad. In its decision, the Ninth Circuit emphasized that debt collectors could avoid liability by successfully asserting a bona fide error defense and that a mistake about the time barred status of a debt under state law may be such an error. Specifically, the Ninth Circuit concluded “that mistakes about the status of a debt under a state statute of limitations are substantively different from mistakes about the requirements of the FDCPA itself and therefore can be bona fide errors.” This decision, although not dispositive, provides more ammunition to continue the fight to chip away at arguments that the bona fide error defense is inapplicable to mistakes of state law.

Appeals Court Affirms Dismissal of FDCPA Over Issue with Collection Lawsuit, Lack of Title Chain

The Eighth Circuit Court of Appeals has upheld the dismissal of a pair of lawsuits filed against a collection law firm that accused it of violating the Fair Debt Collection Practices Act because it included “disbursements” in a statement of claim document when collection lawsuits were filed against the plaintiffs, and because the debt buyer that purchased the accounts did not have a full and complete chain of title when it placed the accounts for collection. More details here.

WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: In a favorable decision for the collection industry, the Eighth Circuit refused to revive two cases filed against a law firm for alleged violations of the FDCPA based on the filing of small claims actions against consumers without sufficient documentation to establish debt ownership. The Eighth Circuit recognized the lack of evidence linking the current creditor to the original creditor, but found that the law firm could not be held liable by merely “articulating its ‘good-faith legal position’ in its ‘prayer for relief’” to a court. Ultimately, the Eighth Circuit agreed with the district court, which granted the law firm’s dismissal motions and found that the plaintiffs were “trying to thread an extremely skinny needle.” The Eighth Circuit emphasized that to rule otherwise would restrict debt collectors’ access to judicial remedies, which would run afoul of the FDCPA’s apparent objective. This case serves as an important reminder that not every violation of state debt collection rules amounts to a violation of the FDCPA.

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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