Compliance Digest – April 12

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 Certifies Class in FDCPA Suit

A District Court judge in California has certified a class in a case accusing a company that performs billing and collection services for a car rental company of violating the Fair Debt Collection Practices Act by sending letters from the billing arm of the company without the mini-Miranda notice. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Putative class actions are often filed, but class certification is not a given. In order to certify a class, a plaintiff must demonstrate numerosity, commonality, typicality and adequacy of representation. Additionally, the plaintiff must demonstrate that the action is of a type that would benefit from a class action disposition rather than an individual action by meeting one of the prongs of Rule 23(b).

What is troubling about this case is that the court seemed willing to overlook at the certification stage typicality and a core element of any FDCPA case – that the debt was incurred for personal, family or household debt. In Viking, the debt arose from damage to a rental car. The court’s unwillingness to consider at certification whether the proposed class representative’s claim was typical (it was alleged that the proposed representative’s rental was for business purposes and reimbursed by his employer) should trouble those practicing in the 9th Circuit and emphasize the importance of attacking the claims prior to class certification (which it appears the defendant attempted to do in this case unsuccessfully). This one leaves me scratching my head!


Judge Grants MTD in FDCPA Case Over Communication Language

If you’re about as old as I am, you may remember the TV show, “Cheers,” specifically mail carrier Cliff Claven, who, in a famous episode, appeared on Jeopardy! and, I won’t spoil it if you haven’t seen it, had one of the best all-time final jeopardy answers in history. A District Court judge in Utah has granted a defendant’s motion to dismiss in a case that I will describe as Claven-esque because the plaintiff accused the defendant of violating the Fair Debt Collection Practices Act by not being specific enough about all the ways that she could make arrangements to pay a debt. More details here.

WHAT THIS MEANS, FROM LARRY LASKEY: In relevant part, the Chadwick letter stated that said “… Bonneville Collections is allowing you to make the decision to either come into our office, or call to make arrangements…. Failure to do so may result in additional collection activity.” The court could easily have read “Failure to do so” as referring to how to make the arrangements instead of whether to make them. However, that interpretation would have required the assumption that the purpose of the communication was not to encourage resolution of the debt but, rather, to mislead the consumer (to whatever purpose).

Pointing out that “the only scenario before Bonneville was an unpaid debt and an unresponsive debtor” who, though least sophisticated must “nevertheless [be] rational and willing to read carefully”, the court shows it clearly understood the (thank you, Captain Obvious) purpose of a debt communication and reminds us that, though the FDCPA may be a strict liability statute where the intent of the collector is of lesser importance, the purpose of the communication must be used to provide interpretation guardrails.

Collector Facing Class-Action FDCPA Suit Over Validation Notice

A Pennsylvania debt collector is facing a class-action lawsuit in New Jersey after it was accused of sending an initial communication that included a statement in the validation notice that said a dispute could be filed either verbally or in writing. More details here.

WHAT THIS MEANS, FROM HEATH MORGAN OF MALONE FROST MARTIN: This is another new theory created by Plaintiff’s counsel to try to find a violation under the Graziano line of thinking where a dispute has to be in writing. The challenge Plaintiff’s counsel has is the Third Circuit’s ruling in Riccio v. Sentry Credit where they clearly stated and that “expanding the ways a debtor can dispute a debt’s validity makes it easier for debtors to invoke its protections “and expressly held that “we think 1692g(a)(3) permits oral disputes. 

This is a case to watch to see if the District Court remains consistent with the Third Circuit’s Sentry Credit decision. If it does, I would expect the District Court to quickly dismiss this class action and hopefully put an end to these alternative variations of Graziano.

Appeals Court Affirms Ruling for CRO Sued by Collectors For Allegedly Sending Fraudulent Disputes

The Court of Appeals for the Fifth Circuit has upheld a ruling in favor of a credit repair organization that was sued by a debt collector for allegedly perpetrating a fraud by failing to disclose it was sending letters to the collector in its clients names and on their behalves, ruling that the collector did not do enough to prove that the credit repair organization committed fraud. More details here.

WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: This opinion from the Fifth Circuit Court of Appeals affirming the district court’s decision to set aside and vacate the jury verdict with respect to the plaintiffs’ fraud and fraud by non-disclosure claims comes as a disappointment to the industry. With respect to the claim for fraud, the Fifth Circuit agreed with the district court that the engagement agreements permitted the defendant to sign and mail correspondence on its clients’ behalves and in their names. In addition, the Fifth Circuit found that the fraud claim fell short because the plaintiffs did not justifiably rely on any alleged misrepresentations. With respect to the fraud by non-disclosure claims, the Fifth Court similarly concluded that the claim must be dismissed because the plaintiffs did not justifiably rely on any failure of the defendants to disclose material facts. Interestingly, the Fifth Circuit wrote, “[w]hile we do not hold today that there are no situations in which a third party may act fraudulently when it mails dispute letters [], we can safely say that this is not one of them. To conclude otherwise would risk undermining well-settled principles of contract law and agency law that have long bound this court.”

Despite this disappointing decision, this case could still impact the practices of credit repair organizations given that the jury did render a verdict in favor of the plaintiffs on their fraud and fraud by non-disclosure claims.

Judge Denies Plaintiff’s Motion for Partial Judgment in FDCPA Letter Case

Would a least sophisticated consumer understand — when reading a collection letter related to the collection of a deficiency balance on her car loan — that the debt is a “consumer debt” as defined by the Fair Debt Collection Practices Act? A District Court judge in Arizona thinks the answer to the question is yes and has denied a plaintiff’s motion for partial judgment on the pleadings after the plaintiff accused the defendant of allegedly violating the FDCPA through what it said in that collection letter. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: The letter included a statement implying that FDCPA-required disclosures apply only if the subject indebtedness is a consumer debt. The consumer alleged that this statement was misleading and that it overshadowed the validation notice required by 15 U.S.C. § 1692g(a). The court disagreed, but the claim could have been avoided by omitting this unnecessary language. Collectors often lack information needed to determine whether a debt is consumer or commercial in nature and play it safe by assuming that the debt is covered by the FDCPA. Fortunately, giving FDCPA-required disclosures will not convert a business debt into a consumer debt. Therefore, collectors do not need to explain that those disclosures apply only to consumer debts. 

Ninth Circuit Vacates Award of $105k in Plaintiff’s Attorney Fees in FDCPA Case

The Court of Appeals for the Ninth Circuit has vacated an award of more than $105,000 in attorney’s fees to the lawyers representing the plaintiffs in a Fair Debt Collection Practices Act case, ruling that the District Court did not “adequately” account for the degree of success obtained when determining the award. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Do your homework and show how you got to the answer! The 9th Circuit reversed a six-figure fee award and sent the case back to the District Court instructing the lower court that a more robust analysis must be undertaken when assessing fees to be awarded to a prevailing party. 

The backstory. The lower/district court found there was liability in a pre-trial summary judgment setting. What was left to be decided – by the jury – was the question of whether the Plaintiff had any actual damages. Plaintiff asked the jury to award emotional distress damages. The jury was having none of it and gave her a big fat goose egg. So, the Plaintiff “won” on summary judgment but “lost” at the damages trial. No harm, no foul? Not according to the plaintiff’s attorney who asked for and was awarded $105,000+ in fees/costs. 

This time, the 9th Circuit wasn’t buying it. The appellate court instructed that a critical component regarding fee awards was missed. The “degree of success.” After all, the Plaintiff lost at the damages trial. So, the appellate court sent the lower court a failing grade with a very specific instruction that “fees for hours spent pursuing an unsuccessful result cannot be sustained.” Stay tuned for what’s expected to be a much lower award to follow.

California Supreme Court Overturns Call Recording Ruling

The California Supreme Court yesterday overturned a lower court’s ruling, determining that the parties and nonparties must get consent from everyone on a wireless or cellular phone call before making a recording. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER: In Smith v. LoanMe, Inc. (April 1, 2021) decided by the California Supreme Court, is a great reminder to everyone about California’s two-party consent requirement to record calls. California Penal Code section 632.7 creates a two-party consent requirement in California to record a phone call where at least one party is on a cordless phone or a cell phone. (Other provisions require consent on corded phones also under specific circumstances.) Here, the representative called the phone number provided by the consumer, and reached her husband (on a cordless phone). It appears that during a “right party contact” confirmation, the representative found that he was speaking to the husband, and the wife, the consumer, was not available. The call ended in 18 seconds – and the call was recorded. 

It is true that there were beeps on the call, starting 3 seconds after the call began, but the representative did not orally advise the husband that the call was being recorded. Beeps may alert a party that the call is being recorded. The trial court believed that was sufficient to deem continuation of the call as consent by the husband, and granted judgment in favor of LoanMe. The husband appealed, and the appellate court addressed whether section 632.7 was intended to address “intercepted” calls by third parties, or the actual participants on the call. (Smith v. LoanMe, Inc., 43 Cal.App.5th 844 (December 20, 2019).) After all, the language of the statute states that a party cannot “intercept” a call and record – how can the parties to a call “intercept” a call? This is an argument that has played out in courts over the last decade or more, but this issue has not been addressed by the California Supreme Court, until now. The California Supreme Court analyzed the language of the statute, noting that the languages states “intercepts or receives.” You must give effect to all language in a statute – and extra words are not placed in the statute simply to add more words. Therefore, “intercept” means one thing and “receive” means something else. If you receive a call, you have consented to the communication with the other party to the call, but not a recording of the call. Moreover, the additional statutory provisions in this Invasion of Privacy Act supports this interpretation by the California Supreme Court. The California Supreme Court also reviewed the legislative materials regarding the enactment of section 632.7, and determined that its interpretation was supported by the legislative materials. And the California Supreme Court’s interpretation was also supported by the policies underlying the statute.

The California Supreme Court appears to have clarified that Penal Code section 632.7 requires consent. The California Supreme Court reversed the appellate decision and remanded to the appellate court to address whether beeps put the called party on notice such that remaining on the call after the beeps would be deemed consent, an issue that has yet to be addressed in this case on appeal. It will be interesting to see how this issue is addressed on appeal. 

California courts are comfortable with the idea that if you announce you are recording a call – at the beginning of the call – and the other party does not terminate the call, that constitutes consent. And California courts have been pretty strict about making the announcement at the beginning of the call. California courts have not been crazy about it – you don’t have to blurt out “recorded call” the minute a person answers the phone. But you need to announce recording the conversation at the beginning. I recommend that people placing calls think of the tag line “on a recorded call” as part of the person’s name. I have always used an example where a caller might speak with more than one person on a call, and when beginning the call with each new person, the caller is normally predisposed to announce their name: “Hi, my name is Jane Doe.” By adding the tagline -, “Hi, my name is Jane Doe on a recorded line” – any time you state your name, callers should be able to remember that (1) the fact that the call is recorded must be stated at the beginning of the call and (2) the fact that the call is recorded must be stated to each person because consent needs to be from each person you record. Statutory damages for failing to get consent is $5,000 per person per call. One can imagine the large statutory damages that might mount in a class action, or even in a single call where the caller recorded three different people before getting the right person on the phone. It is important to say “on a recorded call” at every opportunity to avoid massive damages that might just kill a company. In this case, 18 seconds may cost LoanMe $5,000. And the case is pled as a class action, so who knows how much in statutory damages a court might award.

Collector Reaches $1.1M Settlement in FDCPA Case

A federal judge in California has approved a $1.1 million settlement in a class-action lawsuit in which a debt collector was accused of violating the Fair Debt Collection Practices Act by using false threats of imprisonment to coerce individuals into making payments. More details here.

WHAT THIS MEANS, FROM LAWRENCE BARTEL OF GORDON REES: Here, the debt collector was serving as agent of a district attorney’s office, assisting in the administration of a bad check diversionary program.

The collector used the district attorney’s letterhead in the course of its efforts to recover on criminal restitution debts. The court found that the conduct of the collector satisfied the FDCPA’s definition of a “debt collector” and that the collector’s letters improperly threatened litigation and imprisonment in violation of the FDCPA. Additionally, the court determined that the FDCPA’s exception that applies to certain private entities operating a bad check enforcement program was inapplicable because the private “debt collector” did not meet the “conditions of applicability” (15 U.S.C. § 1692p(a))

While this matter is factually specific and limited in its impact on the collection industry, it serves as important reminders with broader application. First, the collection of criminal restitution penalties, based upon transactions for personal family or household purposes, will likely fall under the purview of the FDCPA. Second, a debt collector should conscientiously avoid using letterhead and language that could be reasonably construed as a false threat, particularly a false threat of prosecution or imprisonment. Finally, if you are collecting under an exception in the FDCPA ― like 1692p or 1692a(6)(F) ― or other statute, ensure that you are complying with the express conditions and applicability requirements to avoid potential liability.

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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