Compliance Digest – April 5

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.

Bill Introduced in House to Prohibit Collection of Time-Barred Debt

A bill has been introduced in the House of Representatives that would amend the Fair Debt Collection Practices Act to prohibit the collection of any debt for which the statute of limitations has expired. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: It was only a matter of time before legislation would creep up addressing the issue of time-barred debt after the Consumer Financial Protection Bureau (CFPB) took a punt for the most part in Reg F. As of the writing of this article the text of H.R. 2135 has not been published, so it is unclear what will be prohibited.

Industry know the trickiness of statute of limitations and time-barred debt. What is known is that statute of limitations is generally governed by the states and state law. When collecting a debt, legal actions are brought in state court usually under a breach of contract or account stated theories and the time to bring that particular action is governed by state law. Further complicating the situation is the determination of what state law governs. For a party involved in litigation, the issue of whether the statute of limitation has run is an affirmative defense. Many state permits the filing of a lawsuit beyond the statute of limitations and shift the burden to the Defendant to assert that defense.

FDCPA case law has been clear, threating or bringing an action after the statute of limitations has lapsed is a violation of the Act. Amending the FDPCA to address that narrow issue will result in opening the pandora’s box on another whole set of issues. First, to what extent would this FDCPA amendment conflict with state law or pre-empt state law?  Based upon the press release by the sponsors of the bill, the federal law would prohibit the filing of a state court action even in states where the filing such an action is not prohibited. Second, what about state civil procedure rules? Does the raising of an affirmative defense go out the window now for  just for debt collection cases? Finally, the inability to enforce a right to payment (which is considered property) would now be banned. Isn’t that a taken and somehow unconstitutional?

Many states have their own rules and laws about statute of limitations including setting the time limit to bring suit and in the case of debt collection, specific disclosures to consumers that the statute of limitations has in fact run. Reactionary bills like the one proposed here do little to address the core issues involving consumer confusion about their rights when debts are time barred and industry’s struggles to determine the appropriate statute of limitation for a given debt. Having open and better communication with consumers is one way to ensure that consumers are aware early on of their rights and the debts they may owe and for industry to act promptly. All this bill will do is create more lawsuits and that certainly is not consumer protection.  


Judge Dismisses FDCPA Case About Letters to Collect on Discharged Debt For Lack of Standing

A District Court judge has ruled that a plaintiff does not have standing to sue a collector that sent two collection letters seeking to collect on a debt that had been discharged in bankruptcy in which the letters indicated that the collector would update “credit data it may have” already submitted in exchange for payment. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: FDCPA claims premised on a claimed violation of the automatic stay or discharge injunction under the Bankruptcy Code are incredibly frustrating. A typical fact pattern goes something like this. The consumer files a chapter 7 or chapter 13 case and lists the creditor in the schedules (thus ensuring the creditor will receive notice of the filing) but fails to list the collection agency or law firm attempting to collect the creditor’s debt as a party who should also receive notice. The agency or law firm then sends a letter or takes some action to collect without knowledge of the automatic stay or the discharge because nobody told them about it. Or, in a slight variation, the agency or law firm receives notice of the bankruptcy but it isn’t processed instantaneously. During the “lag” period, a collection effort is made.

Courts in many jurisdictions have determined these collection efforts to be a FDCPA violation, even where the defendant did not have actual knowledge of the bankruptcy. (Aren’t strict liability statutes fun?!?!) Those courts have further determined the only substantive defense available to the defendant is bona fide error — i.e., the violation of the automatic stay or discharge injunction was not intentional and occurred notwithstanding the maintenance of policies and procedures reasonably adapted to avoid collection efforts after a consumer files for bankruptcy protection. Many agencies and law firms likely can establish this defense, but to do so requires summary judgment or even trial, so it is a costly endeavor.

In short, these bankruptcy-related cases arguably are the most “gotcha” claims under the FDCPA and are not often litigated due to expense. But this case provides new hope in defending them: lack of Article III standing. The Seventh Circuit’s “December Massacre” cases dismissing at least six cases for lack of a concrete injury-in-fact underscore the fact that a claimed violation of the FDCPA does not create an actionable “harm” by itself. There has to be something more, whether the claimed violation was procedural or substantive. The consumer’s claimed “confusion” or “stress” is typically insufficient to constitute an injury-in-fact (in the Seventh Circuit, at least). 

Take home message: don’t presume that a letter sent after a bankruptcy case is filed or the debt is discharge necessarily gives rise to a viable FDCPA claim. There may be a standing challenge to be mounted early in the case.

Judge Grants MTD in FCRA Case Over Discrepancy in Debt Amounts Furnished to CRA

A District Court judge in Maryland has granted a defendant’s motion to dismiss, ruling that a plaintiff lacked standing to claim the defendant violated the Fair Credit Reporting Act when it furnished information that the amount that was past due on a loan was less than the amount that had been written off. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: Unlike the FDCPA, which is a strict liability statute, the FCRA requires that the harm alleged by the plaintiff be causally connected to an injury. The trial court in this case found that publishing a lower balance past due than the actual higher amount past due did not constitute a cognizable harm to the plaintiff. In fact, the error was in the plaintiff’s favor. The court concluded that without harm, there was no standing to sue and dismissed the case. Most agencies have encountered a situation where a court has held that even a true statement may be injurious to a plaintiff. Here, the tables were turned and a court found that every inaccurate statement doesn’t necessary lead to liability.

Judge Denies MTD in FDCPA Class Action Over Continuance Requests in Underlying Collection Suits

A District Court judge in Pennsylvania has denied a defendant’s motion to dismiss a class-action lawsuit claiming it allegedly violated the Fair Debt Collection Practices Act by engaging in a “policy and practice of seeking a continuance in a state-court debt-collection action by falsely representing, on the day of the hearing, that it needs a continuance to procure a witness for the hearing.” More details here.

WHAT THIS MEANS, FROM ANDREW SCHWARTZ OF GORDON & REES: In this decision, the Court denied a motion to dismiss based on Article III standing. In contesting a motion to dismiss, McClellan claimed he incurred a “concrete” and “particularized” injury arising from the collection law firm’s request for a continuance of a hearing for the purposes of securing a witness, where McClellan claimed the collection law firm lacked intent to secure a witness. The Court found that, even where a collection firm exercised the lawful act of seeking a continuance in the state court, where it is alleged that the request is based on an allegedly false premise – to secure a witness without the intent to do so – such allegations may give rise to a plausible FDCPA claim. Here, McClellan asserted that the “false” continuance imposed costs on McClellan. 

The Court held where a plaintiff identifies a particularized and concrete injury based on a lawful request for a continuance, but where the continuance has an allegedly false basis, a plaintiff would have Article III standing to advance an FDCPA claim. As an aside, the class definition in McClellan is a prime example of a “fail-safe” definition, but the Court deferred consideration on striking the definition until class certification. 

Judge Denies MTD in FDCPA Case Over Inadvertent SOL Disclosure in Letter

A District Court judge in New York has denied a defendant’s motion to dismiss a class-action lawsuit alleging it violated the Fair Debt Collection Practices Act by including statements in two collection letters indicating that the statute of limitations during which the individual could be sued for the unpaid debt had expired, even though it had not. More details here.

WHAT THIS MEANS, FROM XERXES MARTIN OF MALONE FROST MARTIN: Collectors beware: a recent decision in a New York District Court held that language in collection letters that induces an individual to not pay his or her debt could constitute a violation of the FDCPA. In Chandler v. NCB Management Services, defendant’s motion to dismiss was denied because the defendant’s collection letter containing false statements regarding the statute of limitations had the potential to affect the debtor’s decision-making process. The statements were admittedly false, which did not help the arguments. Collectors should review their disclosure policies and procedures to safeguard against inadvertently including incorrect disclosures in collection letters that could result in a lawsuit, even if the disclosure has the effect of encouraging nonpayment. A good practice to implement is constant review of written policies and procedures, as well as the technical processes such as test runs of letters for review. This case could still be ripe for an Article III standing argument, so maybe we will see that play out.

Appeals Court Overturns Ruling Against Consumer Rights Law Firm

The Court of Appeals for the Third Circuit has reversed the dismissal of a lawsuit filed by an individual against the consumer rights law firm she hired to help repair her credit that accused the firm of engaging in racketeering, consumer fraud, and unlawful debt adjustment practices, ruling that the lower court mis-applied the choice of law provision and that an arbitration clause in the underlying contract should be enforced. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The lesson of Frederick v. Law Office of Fox Kohler & Assocs. PLLC, LLC is “If it looks like a duck, walks like a duck, and quacks like a duck, it’s a duck.” The Defendants are a multi-state debt resolution company retained by the Plaintiff to resolve her debts. To no one’s surprise, after six years the Plaintiff became dissatisfied with the firm’s services; of approximately $30,000 withdrawn from her escrow account only about $14,400 went to pay down her debts. She filed a class action in the N.J. State Court alleging RICO, consumer fraud etc. and the Defendants removed it to Federal Court and moved to invoke the arbitration clause contained within the retainer agreement. 

Each party agrees to enter into good faith discussions and if needed, allow up to 180 days to seek resolution prior to either party filing a formal complaint. Any dispute that cannot be resolved between the parties after 180 days must be resolved by binding arbitration that replaces the right to go to court before a judge or a jury which may limit each party’s right to discovery and appeal. This agreement shall be submitted for binding arbitration in accordance with the rules of the American Arbitration Association [(“AAA”)]. Neither party may bring a class action suit or other representative action in court, nor bring any claim in arbitration as a class action or other representative action. The laws of the State of DE shall govern this agreement[.]

The District Court found that the clause was unclear, pointing out that the agreement did not specify what disputes it covered. The 3rd Circuit found that “Any Dispute” means just that, stating that the clause was “”‘clear and unambiguous’ in [its] intent and purpose to inform the reader that all disputes must be presented in an arbitral forum, not a court.”. There was also a discussion as to choice of law and its potential impact on reviewing the clause and despite the last sentence in the clause, the 3rd Circuit found that New Jersey law applied, which did not impact it’s ultimate decision and made the discussion seem a bit unnecessary. In the end the 3rd Circuit heard the quack and ruled accordingly. 

Judge Grants MSJ for Defendant in FDCPA Case Over Dismissed Collection Suit

A District Court judge in Wisconsin has granted a defendant’s motion for judgment on the pleadings after it was sued for allegedly violating the Fair Debt Collection Practices Act because it tried to sue the plaintiff twice for an unpaid debt, but neither summons was ever served and the lawsuits were dismissed, thus causing the plaintiff to suffer anxiety and emotional harm for lawsuits he never had to defend himself against. More details here.

WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT: You have to admire Plaintiff’s effort on this one. I’m not saying that debt collection lawsuits aren’t stressful. However, the Kasten matter takes it one step further by arguing that having a collection lawsuit dismissed prior to service is the stressful part. This case has implications far beyond the collections industry. If Plaintiff’s suit was successful, Defendants would be able to sue for damages just for being named in a lawsuit. Parties would also be punished for trying to locate the other party, and for attempting to file in the appropriate venue. That’s just not how our system works, and I appreciate the Court’s thoughtfulness in the Order. Also, kudos to Messerli and Kramer, P.A. for putting the effort into the defense. We often settle matters for a “nuisance fee.” We save expenses by doing so, but we also miss the opportunity to get good case law in our favor.

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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