Compliance Digest – May 24

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 Denies MSJ For Defendant in FCRA Case Over Dispute Investigation Process

A District Court judge in Florida has denied a defendant’s motion for summary judgment and granted a plaintiff’s motion for summary judgment as to liability only, in a Fair Credit Reporting Act case in which the defendant reported debts belonging to the plaintiff, when in fact they belonged to his 83-year-old father, ruling that the defendant’s policies and procedures for investigating disputes did not go far enough to satisfy the statute’s requirements. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Do your homework and be prepared to show it. The FCRA includes an “investigation” requirement for Data Furnishers when a tradeline is challenged. In this case, the court aptly summed up its ruling — in favor of the Plaintiff — as follows: “It is not reasonable for a defendant to claim it has undertaken a reasonable investigation when it has failed to consider all of the information provided to it by a consumer.” Do not “prioritize[] speed and efficiency over accuracy with respect to [FCRA] investigations.”

The case involved a father and son with very similar names. The father’s data ended up being attributed to the son by the CRAs. The son disputed and provided various demographic information to support his dispute. The court found the FCRA dispute policy to be wanting as it did not include a review of the “consumer message” section (that section included explanatory notes indicating that the medical debts could not be Plaintiff’s as he had never been sick a day in his life and that the debts belonged to his father who has a similar name but a different birthdate than his), when the agency reviewed the e-OSCAR information the CRA had forwarded to the agency along with the dispute. 

In the end, the court concluded the investigation, based on the facts of the case, fell short. As our grade school teachers taught us – read the instructions entirely. Don’t skip anything. The instructions are as important as the questions. And only answer after you’ve read everything. Lessons that still ring true today.


House Passes Debt Collection Reform Bill

The House of Representatives yesterday passed H.R. 2547, the Comprehensive Debt Collection Improvement Act, a collection of bills aimed at reforming how debts are collected in the United States. The bill passed by a vote of 215-207 and now heads to the Senate for its consideration. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: Consumer economic well-being has become a priority for this Congressional session. HR 2547 passed by the House last week, not only puts debt collection front and center but in some respects tries to curb the power of the CFPB – the one agency that was supposed to be independent of Congress.

Since the issuance of the final debt collection rule in October and December of last year, Democrats and consumer advocates have waged war on Regulation F. It’s fair to say that both sides have concerns with the finals rule, which probably indicates that the CFPB got it right for the most part. We cannot forgot that the majority of this rulemaking was done under the guidance of Richard Cordray in the early years of the CFPB. While the final rule make some departures from the original proposals, the core objectives have remained the same.

For those that say the rules will harm consumers, clearly they have not read one sentence of the rule. Unfortunately however, 2021 has shown us that there will be a full blown attack on debt collection. HR 2547 is an attempt by Congress to overwide Reg F. For example, Sec 502, CONSUMER PROTECTIONS RELATING TO DEBT COLLECTION PRACTICES, requires an opt-in from the consumer before a debt collector can send an email or text and mandates that the CFPB Director “may not issue any rule with respect to debt collector to send unlimited email, text messages, and direct messages through social media to a consumer”. Other sections are equally misguided in policy as well as the law, and show a complete misunderstanding of the FDCPA, the collection industry and consumers in general.

At least for this Congressional session is seems unlikely that the Senate will address HR 2547. Currently there is no companion bill in the Senate but certainly one could be introduced. That is not to say that in 2022 this issue could be front and center in the Senate. Industry will need to pay close attention. Before Congress and the CFPB makes changes to Reg F, it first needs to be implemented to see whether in fact the sky is falling. Rules are pliable and if in fact consumers and industry are harmed by the rule, then and only then should they be changed. However for the time being, let them be.

SDNY Judge Grants Motion for Defendant in FDCPA Case Over Issues with Letter

A District Court judge in New York has granted a defendant’s motion for judgment on the pleadings after it was sued for allegedly violating the Fair Debt Collection Practices Act when it mentioned in a letter that an account may be placed with an attorney “for possible legal action” and that it did not specify to which of two different mailing addresses mentioned in the letter — one to remit payment and the other a physical office address — a dispute must be sent. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: We’ve seen a lot of these multiple address cases in the past few years and, generally speaking, where as here the letter clearly instructs the consumer which address disputes and requests for validation are to be sent to, the debt collector has been okay. It’s worth mentioning though that including multiple addresses in debt validation notices does create an increased risk of litigation. Absent a sound business reason for doing do, debt collectors should be thinking through this practice.

Of course when the debt collection rule takes effect, all bets are off. Debt collectors will need to review carefully the Rule and the Bureau’s comments. Section 1006.34(c)(2)(i) of the Rule requires the debt collector disclose as part of its validation information the mailing address at which the debt collector accepts disputes and requests for original-creditor information. The Rule allows for some flexibility by allowing a debt collector to disclose a vendor’s mailing address if that is an address at which the debt collector accepts disputes and original-creditor requests. However, importantly, there is some debate as to whether the Rule allows debt collectors to list a second address for payments in the validation notice. Debt collectors who use a lock box should carefully review the optional payment disclosures in context with the Bureau’s comments on p. 129 of the second part of the Rule and consult with their compliance counsel.

CFPB Denies Petition From Title Lender That Argued CID Was Too Broad

The Consumer Financial Protection Bureau has denied a petition from an auto title lender to modify or set aside a civil investigative demand looking into the company’s debt collection practices, among other areas of the business, as well as denied a petition for confidential treatment of the inquiry. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: The Consumer Financial Protection Bureau (“CFBP”) has reinforced its authority to issue broad civil investigative demands (“CID.”) Earlier this year, it issued a CID to TMX Finance LLC (“TMX”), seeking documents, various data, written reports, and responses to interrogatories. The subject CID, a type of administrative subpoena, is the first issued by the CFPB under acting director Dave Uejio, who was tapped by President Biden to fill the post in January after Kathleen Kraninger resigned. TMX requested that the CID either be narrowed or set aside, but Director Uejio denied that request. TMX first argued that the CID was invalid because the CID’s Notification of Purpose was broad in that it failed to provide the company with fair notice of the nature of the agency’s investigation. A CID’s Notification of Purpose cannot use such “broad language” that it is impossible for a reviewing court to apply the following three-pronged test, which evaluates whether (1) the inquiry is within the authority of the agency, (2) the demand is not too indefinite, and (3) the information sought is reasonably relevant. See Consumer Fin. Prot. Bureau v. Accrediting Council for Indep. Colls. & Schs., 854 F.3d 683, 691 (D.C. Cir. 2017). Here, Director Uejio reasoned that the agency he oversees informed TMX that the CFBP was investigating conduct in connection with the “extension of credit, servicing of loans, processing of payments, or collection of debt” as potential violations of the Consumer Financial Protection Act, 12 U.S.C. § 5531, and that the notice was sufficient for a court to apply the three-pronged test.

TMX also argued that the subject CID was invalid because the activities it identified constituted the entirety of the company’s business. Director Uejio also disagreed with this argument based on case law that held the nothing prohibits the CFPB from investigating the totality of a company’s business activities, and that courts have previously enforced administrative subpoenas regarding conduct that is coextensive with the recipient’s business activity. CFBP v. Heartland Campus Solutions, 747 Fed. App’x 44, 48 (3d Cir. 2018).

Amongst the other arguments that Director Uejio considered was that TMX should be permitted to supplement its timely objections to the CID with additional factual and legal objections. According to Director Uejio, the CFBP’s rules do not provide for such a supplement. He pointed to a rule that states that “any petition” shall be filed “within 20 calendar days after service” of the CID, and any such petition must “set forth all factual and legal objections….” 12 C.F.R. § 1080.6(e). Because TMX did not raise the arguments in its supplement within the time period provided, Director Uejio deemed those arguments to be waived.

This decision exemplifies CFBP’s current position that it has broad authority regarding CID’s. It is also important to note that it will enforce its rules strictly, especially when it comes to timeliness of objections to CID’s.

Mass. AG Investigating Company for Venue Choice When Filing Collection Lawsuits

A medical devices company in Massachusetts has caught the attention of the state’s attorney general for filing more than 12,000 debt collection lawsuits during the past 10 years, most of them in the same court, forcing some individuals to travel up to 250 miles to defend themselves in the suits, according to a published media report. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: I see no way this ends well for Regional Home Care, Inc. I get it they want to get paid. But these are not casino debts where nobody really cares that you get default judgments from out of state defendants. These are by definition people with real problems which probably affect their economic situations. After all, who needs equipment to treat “sleep apnea, oxygen deficiency, and other respiratory conditions?” Obtaining default judgments for parties living over an hour from the court or out of state simply doesn’t pass the smell test. There are several unanswered questions. Who was bringing these suits, an outside law firm or an in-house lawyer? How did they obtain personal jurisdiction under Massachusetts law?

I wonder how much money was actually collected to make this wonderful publicity worth it. As a final note, one of the reasons it was decided not to include original creditors under the ambit of the FDCPA was it was assumed that fear of reputation impairment would keep them in line. Guess it didn’t work this time. It will be interesting to see how the Mass AG’s office investigation ends.

Senate Passes Bill Repealing OCC’s ‘True Lender’ Rule Aimed at Boosting Loan Sales

A repeal of a rule that aimed to close a gap in the process of banks selling loans to third parties is a step closer toward its objective and the White House yesterday indicated that should the repeal make it to the desk of President Joe Biden, he will likely sign it into law. The Senate passed a bill yesterday by a vote of 52-47 to invoke the Congressional Review Act to repeal a rule known as the “True Lender” rule that was issued last year by the Office of the Comptroller of the Currency and sought to reduce the legal uncertainty that may have kept banks from partnering with third parties. Critics of the rule say it allows predatory lenders to skirt state usury laws. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: Partisan politics strike again to the detriment of everyone involved in marketplace lending programs, including consumers who get these loans. Also impacted are collectors who collect on accounts that may carry an interest rate above that permitted by a particular state, even when the loan was originated by a bank at an otherwise permissible rate. If successful, the repeal will create additional uncertainty in already fragile credit markets, reducing available credit to consumers who don’t qualify for lower rate credit but desperately need that credit, pushing them into higher cost credit products than they would otherwise be able to access.

For collectors who count as clients the non-bank partners of the banks originating these loans and may ultimately purchase some of those loans, the risk may become particularly acute. If a federal or state agency – perhaps the CFPB or a state Attorney General – takes the position that the non-bank partner is the “true lender” (whatever that might actually mean at any given point in time), and the interest rate exceeds the state interest rate cap, enforcement may follow. We need only look as far as the 9th Circuit’s decision in CFPB v. CashCall to see the potential implications for a debt collector seeking to collect on a loan the bank could have legally made, but that suddenly becomes void under state law for exceeding that state’s usury rate. In such an instance, we know the CFPB takes the position there is no legal right to collect and may be very willing to pursue a UDAAP (against the non-bank service provider) or alleged FDCPA violation (as to the collector). 

More uncertainty is not what we need in the financial markets at this time given everything else going on in the economy today. But that’s what the Senate has given us, with the House and White House signaling they are likely to follow suit.

Calif. Senate Passes Bill Requiring Additional Disclosures for Collectors, Debt Buyers

The California state Senate yesterday passed SB 531, a bill that would require the original creditor or owner of a debt to notify a consumer within five days of the sale or assignment of the debt to someone else, while also giving consumers the right to request certain information about a debt from debt collectors, such as the debt became delinquent or the date of the last payment, among other pieces of information. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER: The important points you should know regarding California Senate Bill 531 is that it mirrors much of the requirements of California’s Fair Debt Buying Practices Act, and provides for additional notices beyond the notices required under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692g, and the California notice, found in California Civil Code section 1812.700. Notably, these new requirements imposed by SB 831 will be required for third party collectors, even though most collection requirements in California are applicable to first party creditors and third party collectors. It may be difficult to fit these additional notice requirements on the Reg F safe haven letter. SB 831 as currently drafted would require the creditor to send a notice to the debtor advising the debt that the debt was being transferred to a third party debt collector, and provide a copy of the notice to the third party debt collector. In addition to the notices that must be included on a third party debt collector’s first letter, SB 831 also provides a laundry list of information that must be provided to the debtor upon request – the same information that a debt buyer must provide on request. One of the other items addressed by SB 531 is to add a definition of “delinquent,” which is defined at 30 days past due and not charged off. As you may recall, the FDCPA does not apply to delinquent accounts – it applies to defaulted account. This statutory definition might be helpful in classifying debts as delinquent and outside the purview of the FDCPA.

The California Bankers Association, the California Credit Union League and the California Creditors Bar Association oppose the bill, which pasted California’s Senate on May 13. California Assembly Committees will begin meeting again on June 7. SB 831 is currently referred to the Assembly Business and Finance Committee and the Assembly Judiciary Committee. SB 831 must be referred out of the committees by July 14. The California Assembly and Senate will adjourn from July 16 to August 16. September 10 is the last day for the Assembly to pass the bill. There is plenty of time left to get this bill to the Governor’s Office. It will be interesting to see how SB 831 progresses.

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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