Compliance Digest – August 2

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 Alleged Improper Service in Underlying Collection Suit

A District Court judge in Arizona has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by serving the plaintiff with a summons for a collection lawsuit in the incorrect venue, ruling that the plaintiff’s failed attempt to have the collection lawsuit dismissed because of the issue with the service of the summons was her one shot at making her case. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Only one bite at the apple. Collateral estoppel/issue preclusion is alive and well. At issue was whether the consumer had been sued on an outstanding debt where she lived, where the debt arose, or as the consumer alleged – someplace else altogether. Consumer appeared in the collection lawsuit and challenged residency. She lost on that issue in state court and a judgment was entered against her. 

Now comes her attempted second bite at the “residency” apple. But the District Court in her federal court FDCPA lawsuit was having none of it and essentially took away the fruit bowl. The District Court found that the consumer had her chance to challenge residency and lost. Because that issue in effect was litigated below, the consumer’s attempt at re-litigating it in federal court was doomed. Interestingly, the District Court did not also dump the claim on Rooker-Feldman grounds. Nonetheless, the consumer went home hungry and the collection law firm was vindicated.


Appeals Court Rules Some Private Student Loans can be Discharged in BK

The Court of Appeals for the Second Circuit has upheld a lower court’s ruling allowing a plaintiff’s private student loans to be discharged as part of his bankruptcy filing, ruling that the provision of the bankruptcy code that prohibits the discharge of “an obligation to repay funds received as an educational benefit” does not apply to loans. More details here.

WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: Most of us have been told since law school that “student loans cannot be discharged in bankruptcy.” But as Mark Twain said, “All generalizations are false, including this one.”  The Second Circuit’s opinion illustrates that — like most other bankruptcy issues — the devil is in the details. Not only details about the loans themselves, but also about the bankruptcy filings and discharge order. This is not the first decision along these lines, and private student lenders and servicers should expect to see the argument raised elsewhere. Importantly, the Second Circuit only addressed whether the loan at issue fell into one of the exceptions to dischargeablity: “funds received as an educational benefit.” The court did not analyze whether it would fall within the exception for a “qualified educational loan.”

Mass. AG Sings Familiar Tune Warning Collectors From Trying to Seize Stimulus Funds

Like Summer follows Spring and Fall follows Summer, so too does another round of reminders to debt collectors that stimulus funds are protected from garnishment follow the latest round of stimulus payments now being sent to individuals across the country in the form of the child tax credit. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: Attorneys who represent the credit and collection industry often emphasize the importance of investing in a solid compliance program to guide collectors in abiding with federal, state and local laws and regulations. State laws can afford its residents more rights than federal law. Massachusetts’ attorney general recently issued guidance regarding the garnishment of federal child tax credit payments that underscores this point. According to the MA attorney general, any action, or threat to take action, to garnish, attach, or otherwise seize federal child tax credit payments violates debt collection regulations in her state. Federal law and many other states, however, do not expressly prohibit garnishment of these payments. For the collection industry, this can easily lead to confusion and result in unintended violations. As an example, since the COVID-19 pandemic began, the federal government has issued three rounds of stimulus checks to eligible individuals, but the federal government protected only the second round of those checks against garnishment from private debt collectors. Because of that, some states, such as Maryland, Nebraska, New Jersey, New York, and Washington have since outlawed garnishment of certain stimulus funds.  In regards to the garnishment of federal child tax credit payments, California’s attorney general also advised that garnishment of those funds would be illegal in his state. Just to keep up with what is permissible from state to state, a solid compliance program is a must for members of the collection industry.

House Passes Bill to Give FTC Back Its Financial Power

The House of Representatives this week passed a bill that aims to restore the Federal Trade Commission’s ability to seek monetary redress in court, after a Supreme Court ruling determined that Congress did not intend to give the regulator that power. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: Last week, the House of Representatives voted to approve legislation that would allow the Federal Trade Commission (“FTC”) to pursue equitable relief in court. That vote brings Congress one step closer to legislatively reversing the United States Supreme Court’s decision in AMG Capital Management v. Federal Trade Commission, which held that Section 13(b) of the FTC Act allowed the FTC to obtain injunctive relief only, not restitution, disgorgement, or other money damages or equitable relief. The bill, H.R. 2668, has been endorsed by 28 Democratic state attorneys general, and now moves to the Senate for consideration.

If enacted, this amendment would significantly raise the stakes for defendants in actions brought by the FTC.  Prior to the AMG decision, the FTC had assessed billions of dollars in equitable relief, and would be likely to increase its efforts under the Biden administration. Additionally, while the Court’s decision in AMG was expected to shift non-bank enforcement activity to the Consumer Financial Protection Bureau, which shares authority with the FTC to enforce consumer protection laws against non-banks, the proposed legislation would allow both agencies to double down on restitution efforts.

Defendant in FDCPA Barcode Case Files En Banc Petition With Appeals Court

The defendant in a Fair Debt Collection Practices Act case where a lower court’s dismissal was reversed over the inclusion of a barcode on the envelope containing a collection letter has filed a petition with the Third Circuit Court of Appeals for an en banc rehearing, arguing that the Supreme Court’s ruling in TransUnion v. Ramirez means the plaintiff lacks standing to pursue his claim. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: The ARM Industry now has two important en banc Petitions pending in Federal Courts of Appeals. We all know about Hunstein and are anxious to hear what the 11th Circuit does with that petition. There now is an petition in a similar case, Morales v Healthcare Revenue Recovery Group, Inc. filed in the Third Circuit. Morales deals with whether a barcode that was on an envelope violated the FDCPA. This theory is somewhat unique to the courts within the Third Circuit (New Jersey, Pennsylvania, Delaware and the Virgin Islands) and has its roots in the infamous Douglas case. Both en banc petitions cite to the recently issued Supreme Court case of Ramirez v Transunion, and argue that the plaintiffs lack sufficient injury in fact to satisfy Article III of the U.S. Constitution. 

It is extremely rare for Courts of Appeals to grant an en banc review and decide to have the full court (as opposed to just a three judge panel) re-hear the case. It certainly helps that the rulings seem to conflict with the recent Supreme Court precedent. We hope that this fall the 3rd and 11th Circuit Courts of Appeals bring good news to 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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