Compliance Digest – July 12

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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 Motion on Pleadings for Defense in FDCPA Case Over Avila Disclosure in Letter

Verbs are important components of a sentence. In fact, a sentence isn’t really a sentence without a verb in it. But choosing the right verb can be difficult. Take, for example, a collection letter that includes a disclosure attempting to inform the recipient of the letter that the balance that is owed is not static. If the sender of the letter knows that the balance is growing because interest is accruing on the unpaid debt, does the sender have to be definitive in notifying the recipient of said accrual? Not necessarily, according to a District Court judge in New York, who granted a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: The litigation surrounding interest disclosures continues to be a favorite among New York consumer attorneys and this case is simply another example. Based on the decision, it appears that the Plaintiff was unable to satisfy their burden of identifying “at least two reasonable interpretations of a collection notice and show that the deceptive arising from those interpretation is material.” Klein, Slip Op. p. 5. Instead, Plaintiff argued that since the interest disclosure did not track the exact language suggested by the Second Circuit in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), the letter was false and misleading. New York judges have not bought that argument and the same is true of this judge. In fact, the judge went so far as to say that “Plaintiff’s argument arises from ‘exactly the kind of labored reading of the [L]etter from which courts have worked to protect debt collectors[]’ and, therefore, is without merit.” Klein, Slip Op. p. 6.


Judge Grants MSJ For Defendant in FDCPA Case Over Credit Karma Report

What Credit Karma says in its reports about a consumer’s credit history is not gospel, a District Court judge in Tennessee has ruled, granting a defendant’s motion for summary judgment after it was accused of violating the Fair Debt Collection Practices Act because it allegedly communicated information to a credit bureau after it was instructed by the creditor to request all of its tradelines be removed from its customers’ credit reports. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Thomas v CBC is a good example of the best evidence concept. It also can be used to demonstrate at the summary judgment stage that Credit Karma reports are not reliable evidence to prove something or create a question of fact. This is important because plaintiffs often rely on Credit Karma information.

The claim is fairly common. A consumer lawyer sent an agency a dispute on debts. The agency requested the bureaus delete the tradelines. A lawsuit then was filed because supposedly the agency credit reported on the debts after the dispute but did not note disputes with the report. At the summary judgment stage, the agency presented an affidavit and business records that it requested the deletion and took no further action on the accounts. Plaintiff presented the Credit Karma report that supposedly showed that Equifax’s records showed that reports on the debts were made two weeks after the agency claimed the trade lines were deleted.

The court held plaintiff’s evidence insufficient to create a question of fact. The report was vague on the key facts and it was not a business record of the actual credit reporting agency. Perhaps the court also was influenced by plaintiffs testimony that she did not dispute the debts but was not in position to fully pay them (fn. 3).

Judge Partially Denies Defendant’s Motion for Judgment in FCRA, FDCPA Case Over Removal of Dispute Notification

Navigating the rough waters of credit reporting is tough sailing oftentimes. Even when a company tries to do the right thing, problems can arise. One defendant is learning that after a District Court judge in Missouri partially granted and partially denied its motion for judgment on the pleadings in a Fair Credit Reporting Act and Fair Debt Collection Practices Act case because it allegedly did not update the information it was furnishing to the credit bureaus when the plaintiff notified the bureau that she was no longer disputing the debt in question. More details here.

WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT OF NORTH AMERICA: On the surface, this seems to be a case of “no good deed goes unpunished.” However, a deeper dive shows the complexities of the FCRA in terms of unique responsibilities for different entities involved in the process. Here, the agency had a responsibility to do something when they were notified of the dispute removal. What they specifically should have done is still to be determined. It may result in an ultimate win for the agency if their procedures are reasonable.  From my experience, most agencies have great procedures for reporting disputes, but lack solid processes for when the dispute can be lifted. That’s the tougher part to standardize, because it is rare that a consumer makes it 100% clear that they no longer dispute. Short of a paid in full, we aren’t getting a lot of consumers sending us follow up letters saying they agree with the debt. While we wait for the final outcome in this matter, it’s a good time for every agency to update their credit reporting procedures to put any missing controls in place. We should also brace ourselves for an influx of disingenuous “baiting” correspondence where consumers start playing the game between notification and timing which were both a focus in this case.

Judge Uses First Amendment to Grant MTD in FDCPA Case

It’s Independence Day weekend here in the United States, so is there a better time to discuss the First Amendment to the Constitution? The timing is just coincidental, though, to Judge Howard Neilson of the District Court for the District of Utah, who relied heavily on the First Amendment’s Petition Clause to grant a defendant’s motion to dismiss in a Fair Debt Collection Practices Act case, after it was accused of violating the statute by including a percentage-based collection charge in an underlying collection suit that was filed against the plaintiff as well as attempting to include a confession of judgment in a settlement agreement proposal. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: This is an interesting decision from my view.  Rarely do we see the interplay of debt collection with the Bill of Rights or other Constitutional rights. What makes this ruling unique is the court’s reliance on First Amendment principles. Oftentimes, people equate “First Amendment” with “free speech” but actually there are several provisions within the first amendment to the Constitution.  For example, we have freedom of religion, freedom of assembly, and freedom to petition the government to redress grievances (also known as the “petition clause”). (By way of explanation, seeking a judgment in civil court by filing a lawsuit is considered a form of petitioning the government.) Here, the court relied upon the petition clause as reason to dismiss the consumer’s claim under the FDCPA. The law geek in me particularly likes the judge’s broad analysis of the origins of constitutional law, the rich history of government petitions and how it creates a foundation for our judicial system. If you want to get a pretty good history of the petition clause, feel free to read pages 3-7 of the opinion (alternatively, feel free to read it if you have trouble falling asleep at night).

In essence, the court found that the debt collector’s filing of a collection lawsuit (and, by extension, the same action by the debt collector’s attorney) qualifies as an exercise of the constitutional right to petition the government for a redress of grievances.  It has become generally understood and accepted within the industry that any host of actions by a debt collector can be twisted into a violation of the FDCPA – a sentence in a letter is argued to be a miscommunication, a telephone call at dinner is asserted to be harassment, etc. The consumer in the instant case argued that the collection litigation and request to recover a collection fee, coupled with an offer of settlement and confession of judgment, violated Sections 1692(e) and 1692(f) of the FDCPA. In dismissing this contention, the district court noted that a statute passed by Congress (in this case, the FDCPA) cannot override the protections of the Constitution, including the right to petition.  While the protection is not absolute (it does not, for instance, protect a debt collector’s filing of a “sham” or fraudulent petition), it is enough to protect civil litigation filings made in good faith.

BONUS COMMENTS! (I accidentally asked two attorneys for their comments. I apologize for the oversight)

WHAT THIS MEANS, FROM JOHN MAREES OF MESSER STRICKLER: This decision is a well-reasoned and equal application of the Petition Clause to debt collectors. Here, the Utah District Court found that the Petition Clause protected a debt collector’s ability to asses a percentage-based collection charge. But the reasoning and logic behind the District Court’s decision could have wider implications on our industry. That is, at the heart of the District Court’s decision, is the fact that debt collectors should be treated the same and have the same rights under the Petition Clause as any other person or entity.

Calif. DFPI Issues Proposal to Change Licensing Application

The California Department of Financial Protection and Innovation (DFPI) has issued a notice of rulemaking, seeking to incorporate changes to its debt collection license application after reviewing comments on the proposal. Interested parties have until July 12 to submit their comments on the new proposal. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENT VISION: The California licensing law scheduled to go into effect on Jan. 1, 2022, may not be the greatest news for the California collection agencies but, this amendment does reflect an effort to make it more manageable. The proposed amendments actually ease the burden that the licensing requirement will impose.  

The fundamental changes included in the amendment include removing the Commissioner’s right to increase bond requirements, eliminating the licensee’s requirement to send in copies of internal audit structures, and policies and procedures, eliminating the reporting of third parties used for debt collection activities. To give an example of the impact these changes have, look at eliminating the Commissioners right to increase bond requirements. Before, the law stated that bond requirements could be increased to an indefinite amount based on the total dollar amount collected by the licensee as required to be reported annually. The initial $25,000 bond requirement may be hard to obtain and could come with a high cost. The idea that it could be increased annually should have concerned all, and it is good to see this section amended.  

While it is unknown who recommended these changes, it was likely as a result of industry input, and the board created to oversee the licensing program, which included individuals representing the collection industry. It is an excellent example of why it is essential not to simply concede to proposed regulations, but instead to voice the impact such will have on an industry. 

Minn. Gov. Signs Omnibus Bills into Law, Include Provisions For Debt Buyers

The governor of Minnesota has signed a number of omnibus bills into law, one of which contains provisions that expand the regulation of the accounts receivable management industry to include debt buyers, a new term that the state is defining for the first time. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Following an outreach by the Minnesota Department of Commerce to Michael Klutho (Bassford Remele PA) as President of GLCCA (a Unit of ACA), Klutho and  a representative of RMAI worked closely with the DOC to address the DOC’s stated desire to add debt buyers to Minnesota’s Collection Agency Licensing statute. The language that’s now become law concerning debt buyers was crafted by RMAI’s representative such that debt buyers are now within the purview of the DOC as a regulator. Licensure of debt buyers is required by January 1, 2022.

Additionally, GLCCA saw this outreach from the DOC as a potential opportunity to work with the DOC on updating certain aspects of the licensing statute; specifically to allow collectors to better communicate with consumers in ways that were prohibited by the statute. This began a negotiation that covered two years, including the Covid pandemic, that culminated in the enactment of several changes to the licensing statute that will benefit collection agencies and collectors going forward.

For example, collectors can now work from home in Minnesota. They were allowed to do so temporarily during the pandemic. That “experiment” demonstrated collections from home can be conducted in a compliant fashion. So the statute was amended to allow collections from home through May 31, 2022. GLCCA and its lobbyist will endeavor to work to remove the May 2022 sunset on WFH when the next legislative session begins.

Additionally, collection agencies can now register a d/b/a with the DOC and use that d/b/a to communicate with Minnesota consumers. This change will help with limited content messaging too when Reg F goes into effect. Also, the statutory amendments changed the prior blanket prohibition on leaving prerecorded messages using an automatic dialing announcing device (ADAD). Now, such messaging is allowed unless the consumer expressly informs the collection agency/collector to stop utilizing an ADAD.

Penn. Legislature Passes Bill Allowing State Courts to Hire Private Collection Agencies

The Pennsylvania legislature has passed a bill that will allow state courts in the Commonwealth to place accounts private collection agencies to pursue individuals with overdue court fines and costs. More details here.

Penn. Gov. Vetoes Bill Allowing State Courts to Hire Private Collection Agencies

The governor of Pennsylvania has vetoed proposed legislation that would have allowed state courts to hire private collection agencies to recover unpaid court fines and costs, saying it could “disproportionately” harm low-income individuals. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: It is no surprise that states are thinking of creative and not so creative ways to plug the gaping holes left in their budgets as the result of the pandemic. As the ARM industry as seen, many states are looking to increase licensing fees and new licensing requirements as source of revenue.

What’s interesting about the Pennsylvania bill is that it would not only would allow private collection agencies to collect on unpaid costs or fines due the court, but it would allow collection agencies to recovery court ordered restitution due and owing to victims.

The current Pennsylvania law prohibits private collection agencies from collecting on court debt until there is a financial determination hearing. Only until a defendant appears for a hearing, can a judge refer the matter to a collection agency. The bill would permit the referral if the defendant fails to appear. The sponsor noted that many of  these defendants are either from a different county or out of state, so the likelihood of having a financial determination hearing is low.

Nevertheless, the Governor of Pennsylvania vetoed the bill. Another example of rewarding the unaccountable and penalizing the victims.

CFPB Releases Supervisory Highlights, Spotlight Issues Found During Examinations of Collection Operations

The Consumer Financial Protection Bureau has released the 24th issue of its “Supervisory Highlights” reports, which shares the results and findings from examinations of companies regulated by the CFPB with respect to how those companies are complying with federal law. This includes debt collectors and their compliance with the Fair Debt Collection Practices Act, which the CFPB “identified violations” of during its examinations. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: The Consumer Financial Protection Bureau, or the CFPB, recently published its 48-page Summer 2021 Supervisory Highlights, which outlines, among other things, the agency’s observations of how debt collectors are violating the Fair Debt Collection Practices Act (“FDCPA”) based on its 2020 examinations. The agency issued $124 million in remediation and civil money penalties as a result of its 2020 enforcement actions. Some of the areas in the FDCPA that the CFPB found debt collectors to have violated included:

  • Sending validation notices that did not include required information. Section 1692g of the Act governs the so-called validation notice. The CFPB found that debt collectors sent incomplete validation notices arising from template changes that compliance departments for debt collectors had not reviewed.
  • Falsely representing to consumers the impact on their credit files of paying off their debts. In general, section 1692e(1) of the Act prohibits debt collectors from making false representations to collect debts. The CFPB found that debt collectors falsely represented to consumers the impact that paying off their debts would have on their credit profiles, such as that paying off a debt would result in the cessation of negative treatment to the consumer’s credit score.
  • Harassing consumers by emphasizing multiple times to consumers who had expressed an inability to pay that the debt collector would note that the consumer was refusing to pay. Section 1692d of the Act generally prohibits harassment of consumers. The CFPB found when consumers said they were unable to make payment arrangements, some debt collectors stated multiple times to consumers that the collector would note a refusal to pay in the company’s system.  The agency determined this to be a violation.
  • Continuing to attempt to collect a debt after the debt collector received a written request from the consumer to cease further communications. Section 1692c(c) of the Act prohibits debt collectors from taking certain activities after receiving a written request from the consumer to cease communications. The CFPB found that debt collectors continued to contact consumers to collect debts even after the companies received a written request to stop communications.
  • Communicating with consumers at their places of employment at times the debt collection knew or should have known were inconvenient to the consumers. Section 1692c(a)(3) of the Act prohibits debt collectors from contacting consumers at their workplace at times that the collector knows or should know are inconvenient to the consumer. THE CFPB found that debt collectors continued to call consumers at their workplace after being told that calls there were either inconvenient or that the employer prohibited them.

This report confirms the CFPB’s continued focus on debt collection.  Debt collectors should continue to invest in properly training and monitoring collection personnel in order to avoid violations and fines. In This will also help debt collectors with a CFPB examination.  In short, compliance is key here.

CFPB Releases Final Rule to Protect Homeowners from Foreclosure, post-COVID

The Consumer Financial Protection Bureau yesterday announced the release of a final rule, which will go into effect on August 31 and aims to ensure an “orderly transition” back to a normal housing market by providing protections to homeowners to prevent a flood of foreclosures now that many forbearance programs put into place during the COVID-19 pandemic are ending. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: While the Final Rule is narrower than the original foreclosure prohibition discussed in the proposed rule issued in April, it will still notably limit servicers’ ability to initiate foreclosures. Furthermore, servicers will need to exercise extensive due diligences and recordkeeping to proceed forward with the few types of foreclosures permitted prior to Jan. 1, 2022. Additionally, while this Rule does not go into effect until August 31, both Fannie and Freddie have issued policies which prohibit servicers between July 31 to August 31 from initiating any foreclosure activities which would violate the rule. So, for all practical purposes, the Rule’s foreclosure restrictions become effective at the end of this month. Additionally, servicers will need to update and strengthen their current borrower outreach programs to ensure compliance with the Rule’s early intervention requirements. Between the practical challenges to implement and the focus the CFPB will undoubtably give it during its future supervision and enforcement activities, this Rule will require significant compliance efforts from servicers in the days to come.

Industry Files Suit to Block Enactment of Nevada Medical Debt Collection Law

A dozen collection agencies, plus ACA International and the Nevada Collectors Association have filed a lawsuit against the state of Nevada seeking to block the enactment of a new law that governs how medical debts are to be collected in the state. The new law is scheduled to go into effect this Thursday, July 1, unless the plaintiffs are successful in convincing a federal judge in Nevada to grant a temporary restraining order blocking the bill from going into effect. More details here.

WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: This law has been subject to myriad criticisms — undefined terms, ambiguous application, inconsistencies with other Nevada laws, conflicts with federal laws . . . the list goes on. In fact, the Nevada state agency that regulates collection agencies has already made a number of unofficial statements to fill in the gaps left by the legislature. While its efforts to guide collection agencies is laudable, it cannot cure the deficiencies in the law itself. This lawsuit seeks to do just that. Laws should be certain, clear, and precise; and with state laws, that includes defining how they interact with a pre-existing federal framework. The law was well-intentioned, but in the rush to enact it, those ingredients weren’t fully cooked in. Half-baked makes for good ice cream, but not good laws.

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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