Compliance Digest – April 19

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 Service During Pandemic

A District Court judge in Michigan has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act when the plaintiffs were served with a summons and complaint in a debt collection lawsuit because the process servers purportedly harassed them by serving them without wearing proper protection to prevent the possible spread of COVID-19. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: While Article III standing is not a new requirement in federal litigation, recently, an increasing amount of federal courts have held that a plaintiff must do more than ‎simply allege violations of the FDCPA in order to satisfy it. That is, in order to satisfy Article III standing, the plaintiff must allege that the violation either harmed ‎the plaintiff or caused an appreciable risk of harm. In Eickenroth, a Michigan district court dismissed a FDCPA putative class action based on the plaintiffs failing to sufficiently allege facts showing they had Article III standing. Eichenroth is interesting because the plaintiffs attempted to creatively use their fear of contracting  the COVID-19 pandemic as the basis for their FDCPA claim. The plaintiffs alleged that when they were personally served with a summons and complaint in a collection action that process servers were not wearing the necessary clothing to help avoid the transmission of the virus.

The plaintiffs claims were primarily based on the following three theories. First, the plaintiffs alleged that under section 1692d of the FDCPA personal service of a summons and complaint in a debt collection matter was not necessary to sustain or protect life or to conduct minimum basic operations under the emergency order that was in place in Michigan due to the pandemic. Second, the plaintiffs alleged that under section 1692c of the Act personal service was inconvenient. Third, under section 1692e, the plaintiffs alleged that the defendant mislead them into believing that they only had 21-days to respond to the Complaint when, in fact, Michigan had extended that deadline. As to the plaintiffs claim under 1692d, the court held that while Michigan’s emergency order generally required Michigan citizens to “stay at home,” it allowed workers to leave their homes as necessary to work to sustain or protect life or to “conduct minimum basic operations.” The emergency order expressly permitted litigation to continue. Thus, the plaintiffs could not maintained that they were harmed when the law permitted exactly what the defendant was alleged to have done. In regards to the plaintiff’s claim under 1692c, the court held that while the plaintiffs fear of contracting COVID-19 may have been real, they did not allege that the process servers were infected. Thus, the plaintiffs claim under that section was too speculative. As to the plaintiffs’ claim under 1692e, the court held that the plaintiffs had also received documentation with the summons and complaint notifying them that the time frame within which they would have needed to respond to the complaint had been extended, and that plaintiffs’ immediately hiring a lawyer to defend them did not detrimentally harm them. As a result, the court held that the plaintiffs failed to establish Article III standing and dismissed the lawsuit.

This case underscores the importance of always reviewing whether the plaintiff has satisfied Article III standing in a federal court case.  It is also important to remember that lack of Article III standing can be raised at any point in the case.


Trio of Collection Attorneys Charged With Racketeering, Accused of Forging Proof of Service Docs

A trio of Michigan attorneys have been arrested and charged with racketeering and obstruction of justice, among other charges, by allegedly operating a scheme through which they forged documents that were filed in state court seeking to collect on debts that individuals did not owe. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: This case may be the worse kind of news to read about; when those in place to protect the law are charged with breaking the law.  As an attorney, this case simply pains me. The 30 counts of accused forgeries resulted in judgments without service or notice to many if not all of whom do not understand the legal process. While in the past there have been instances where attorneys have forged other attorney’s signatures, documents submitted as part of the evidence, and other court pleadings, the forgery of service of process is a clear violation of each victim’s constitutional right of procedural due process. No one can overlook the importance of the prosecution of the individuals accused. 

All said it is the duty of all to ensure these types of actions do not occur. If anyone has any reason to suspect crimes of this nature, such must be reported immediately. The firm in question was in business since 1976, are the counts charged a clear representation of the total number of actual crimes committed?  Investigations are ongoing, but we can only guess at this time that if defendants are found to be guilty, it will go to reason that we will find hundreds of more acts committed by this firm. What if someone reported suspicion earlier? How many instances of this crime could have been avoided? It may not seem like a big deal, simply skirting one step in the process, but take out one block, and the entire system can fail.  

Judge Denies MTD on FDCPA Claims Over Garnishment Info Sent to Wrong Person

A District Court judge in Washington has partially granted a defendant’s motion to dismiss, but denied the motion related to claims the defendant allegedly violated the Fair Debt Collection Practices Act when it mistakenly sent two letters to the plaintiff informing him that a writ of garnishment had been entered against him, one of which was sent after the plaintiff had hired an attorney who instructed the defendant to cease communications. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: Garnishments, liens, attachments and lawsuits are often considered “extraordinary” collection methods that frequently carry increased scrutiny in courts. This is one such example. The collection agency in question sent a letter to the plaintiff stating that the original creditor had secured a judgment against him, and that the agency was serving him with a writ of garnishment. However, the letter was apparently sent to the wrong consumer – the plaintiff’s social security number and account were different than what was listed in the letter.  In response, the plaintiff hired a lawyer to communicate on his behalf and disputed the debt, pointing out that the collection agency had a mistaken identity.

Unfortunately for the agency, its internal processes broke down as it failed to respond to the dispute.  Instead, it sent another letter six months later, directly to the plaintiff (not his attorney) with substantially the same assertions.  The agency did not process the dispute and provide validation of the debt, nor did it mark the account as a cease-and-desist communications, since the consumer was represented by an attorney. Not very good facts from which to assert a motion to dismiss! Further compounding the collection agency’s legal problem (according to the judge) was the “shifting” factual arguments – such as arguing that it was obvious to the plaintiff that the agency was attempting to collect from someone else, yet at the same time that it was trying to collect against the plaintiff directly. 

The best argument the collection agency made was that the errors were due to internal mistakes, and that it should be allowed to avail itself on the bona fide error defense. As we all know, the bona fide error defense allows a collector to avoid legal liability for an FDCPA violation if it can establish that it incorporated reasonable procedures and precautions designed to avoid the error/mistake, and despite those procedures the error occurred anyway. However, the bona fide error defense usually must be supported by evidence – of the existence of precautionary procedures, of the reasonableness of those procedures, etc. When a defense relies upon new evidence to support it, then the plaintiff’s claim cannot be dismissed at the outset (on a motion to dismiss) but rather the parties are required to engage in discovery so that the plaintiff can rebut the bona fide error defense.  In other words, a bona fide error defense is helpful but an expensive proposition, since a defendant must litigate a good portion of the lawsuit before the plaintiff’s claims can be rejected. 

Without the bona fide error defense, the collector had a difficult time arguing that, as a matter of law, the plaintiff could not have been confused or deceived by inaccurate information in the collection letter. Even further, the court noted that an attempt to garnish wages or a bank account of a debt not owed is an “unconscionable” act (remember, extraordinary collection methods will usually be more closely scrutinized). 

Appeals Court Overturns Ruling in FCRA Case

Once a customer, always a customer, the Eleventh Circuit Court of Appeals has ruled in reversing a lower court’s denial to compel arbitration in a Fair Credit Reporting Act case, determining that the defendant was not violating the law when it accessed a former customer’s credit report when he called about obtaining service from the defendant 18 months after he had canceled his contract. More details here.

WHAT THIS MEANS, FROM JACQUELYN DICICCO OF J. ROBBIN LAW FIRM: The Eleventh Circuit, in reversing the decision from the United States District Court for the Northern District of Georgia, held plaintiff’s Fair Credit Reporting Act (FCRA) allegations are subject to arbitration and survived the termination of the agreement between plaintiff and defendant. In Hearn v. Comcast Cable Communications, LLC, No. 19-14455, D.C. Docket No. 1:19-cv-01198-TWT (11 Cir. Apr. 5, 2021), the Eleventh Circuit held that the subscriber agreement, executed between plaintiff and defendant that both contained an arbitration provision applying to “any claim or controversy” related to defendant and that the arbitration provision expressly survived termination of the agreement, must be applied and the dispute must proceed through arbitration. 

In Hearn, the plaintiff obtained services from defendant in 2016 and, while securing the services, signed a work order acknowledging receipt of a subscriber agreement, including a provision stating that disputes involving the plaintiff and defendant shall be resolved through arbitration. In 2017, plaintiff terminated defendant’s services. Two years after the termination, plaintiff contacted defendant to inquire about defendant’s services and pricing. During that call, defendant pulled plaintiff’s credit without permission. As a result, plaintiff filed a class action, alleging defendant violated the FCRA when it pulled his credit information. Defendant moved to compel arbitration and, in opposition, plaintiff argued that there is no valid arbitration agreement between the parties and that the FCRA claim does not relate to the subscriber agreement. The District Court denied defendant’s motion to compel arbitration, holding that the arbitration provision was not all encompassing that it would apply to all claims at all times and that the FCRA claims were not subject to arbitration because they did not arise out of the subscriber agreement. On Appeal, the Eleventh Circuit clarified and confirmed that: (1) the arbitration provision “applies broadly to all disputes between the parties and applies even if the dispute arises after the Subscriber Agreement is terminated”; and (2) the FCRA claim relates to the subscriber agreement and is subject to arbitration because plaintiff previously had a relationship with defendant and already had all of plaintiff’s personal information on file from the subscriber agreement.

This decision demonstrates the wide reach and benefit arbitration agreements provide to defendants against class actions. Parties should immediately look to see whether an arbitration agreement is available and, if so, attempt to compel arbitration.

Bill Introduced to Keep ‘Predatory’ Collectors From Accessing PPP Loans

A bill has been introduced in the House of Representatives that seeks to cut off any debt collector from receiving additional funds under the Paycheck Protection Program if that collector has been found to have violated any provision of the Fair Debt Collection Practices Act by a federal agency or an action brought in a court of competent jurisdiction. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: This legislation strikes me as unlikely to pass the current Congress. However, it bears note that a segment of House Democrats equate the term “predatory” with a single violation of the FDCPA by a collection agency. As we all know, there can be significant room for disagreement on how to interpret various provisions of the FDCPA. Plaintiff’s counsel come up with new and evolving interpretations of what appears to be clear language in the statute. Consumer advocates clearly have the ear of at least some segment of current Congress. This bill underscores the ongoing need for the receivables industry to continuing advocating and engaging with regulators and legislators at both the federal and state level to ensure a fulsome narrative and accurate picture is presented.  As consumer advocates are quick to provide stories of alleged consumer mistreatment, should the industry be quick to share stories of positive consumer experiences and successful resolution of consumer concerns. The industry has evolved and adapted significantly over the past decade in its approach – now we need to ensure that is known and acknowledged.

Appeals Court Rules Settlement Does Not Entitle Plaintiff to Attorney’s Fees

In a case that was defended by Robbie Malone and Xerxes Martin of Malone Frost Martin, the Fifth Circuit Court of Appeals has determined that a plaintiff in a Fair Debt Collection Practices Act case is not entitled to have his attorney’s fees paid by the defendant, because he settled his case before it could be ruled on by a judge or jury, affirming a lower court’s ruling. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: This decision should come as welcome reading to anyone who has dealt with Michael Wood and Celetha Chatman and may balance some disappointment members of the industry had after the Fifth Circuit’s decision in a previous appeal on the same case. See Tejero v. Portfolio Recovery Assocs., LLC, 955 F.3d 453 (5th Cir. 2020) (“Tejero I”). In Tejero I, the Fifth Circuit reversed the district court’s imposition of sanctions against Plaintiff’s lawyers and remanded the case for a determination of whether Plaintiff’s attorneys were entitled to fees and, if so, in what amount. On remand, the district court denied fees finding that the settlement for the statutory damages limit of $1,000 did not qualify as a successful action.  Tejero filed this second appeal.

The Fifth Circuit analyzed the text of the FDCPA and held that the FDCPA’s reference to a “successful action to enforce the foregoing liability” means a lawsuit that generates a favorable end result compelling accountability and legal compliance with a formal command or decree under the FDCPA. “Tejero won no such relief because he settled before his lawsuit reached any end result, let alone a favorable one. And by settling, Portfolio Recovery avoided a formal legal command or decree from Tejero’s lawsuit.” The Court of Appeals rejected Tejero’s argument under the “catalyst theory”, which posits that a plaintiff succeeds “if it achieves the desired result because the lawsuit brought about a voluntary change in the defendant’s conduct.”

While the outcome will pertain to a narrow set of cases, industry members who have dealt with the plaintiff’s lawyers may find comfort in the fact that they have litigated this case for almost five years, through two appeals, only to recover nothing.

False Threats Nets Collector Lifetime Ban from Industry

The Consumer Financial Protection Bureau yesterday announced it had entered into a consent order with a debt collector and its owner for falsely threatening to take legal action against individuals and that the company and the owner have been permanently banned from the industry and ordered to pay $860,000 in redress to its victims, which has been suspended due to an inability to pay. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: The CFPB is right to focus on these types of enforcement actions. When debt collectors materially lie, there is a bright line that they have crossed justifying enforcement action. In this case, the collectors also lied about their ability to garnish wages, place liens on property and get debtors’ driver’s licenses revoked. Interestingly, although the collector must pay a significant amount of restitution, the CFPB only assessed a $2200 civil penalty. Typically, such an egregious offense generates a substantially higher number. The Bureau may have found the collectors agreement to leave the industry permanently more valuable than penalty dollars which the collectors likely didn’t have anyway.

Judge Partially Dismisses FDCPA Suit on Remand From Appeals Court

A District Court judge in Maryland has partially granted a defendant’s motion to dismiss in a case that was remanded back to the court after a ruling from the Fourth Circuit Court of Appeals last year determined that the court had erred in deciding when the one-year statute of limitations had stated running on potential violations of the Fair Debt Collection Practices Act. More details here.

WHAT THIS MEANS, FROM CHANTEL WONDER OF GORDON & REES: In this case, the Plaintiff property owner requested that the HOA management company call him to discuss whether he could appear at an HOA meeting after he was banned for allegedly harassing the HOA President at a prior meeting. The HOA believed the Plaintiff to be behind on HOA dues, and the management company played a dual role as management for the HOA and debt collector when the property owners owed dues, as most HOA management companies do. The Plaintiff sent the management company a cease and desist prior to requesting a call to discuss the HOA meeting. During the call, the property manager mentioned that this would not have happened if the Plaintiff just paid his bills. The court found that the phone call become an attempt to collect a debt in violation of the prior cease and desist when the property manager changed the focus of the phone call to the fact that the Plaintiff owed money, even though she did not explicitly request that he pay the amount due. This case highlights the FDCPA minefield that companies face when they collect late fees for their clients, in addition to their primary duties.

The Plaintiff also claimed that the verification letter sent by the management company violated the FDCPA because it included attorneys’ fees, prior to any order awarding an amount of attorneys’ fees was entered for the HOA. The court entered summary judgment for the management company on this issue, following 7th Circuit case law stating that when the debtor agrees to a contract which allows for attorneys’ fees, the collector may include the amount of attorneys’ fees in their collection letters without the court’s permission. Although the management company lost one claim and won the second claim, this decision is full of valuable guidance for collectors in the industry.

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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