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 www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.
Every week, AccountsRecovery.net 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.
CFPB Announces Nov. 30 Effective Date For Regulation F
The Consumer Financial Protection Bureau announced today that Regulation F will go into effect on November 30 as originally planned and will not delay the effective date of the rule until January 2022. More details here.
WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: In April 2021, the Consumer Financial Protection Bureau submitted a financial notice in the Federal Register providing an opportunity to extend the effective date of the CFPB Rules from November 30, 2021 to January 29, 2022. The intent of the extension from the CFPB’s perspective was to grant the debt collection industry an additional 60 days to prepare for implementation of the new debt collection rules due to the COVID-19 pandemic.
Debt collection trade groups generally opposed the proposed extension and interestingly the consumer advocate supported the extension of the effective date, but gave no reason why. The belief in the industry centered around the consumer advocates attempts to revise the rules prior to implementation. The CFPB did mention in the release that it may “reconsider” the debt collection rules at a later date and nothing in the decision to maintain the original effective date of the rule would preclude the CFPB from reconsidering the debt collection rules at a later date.
Debt collectors should be prepared to implement the revised requirements of the rule by November 30, 2021. Debt collectors should also be prepared to see revisions of the rules or even additional or new rule from the CFPB in the near future.
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Judge Grants MSJ For Defense in FDCPA Case Over Disputed Debt
At the end of the day, all you can control are your own actions. If you ask someone to do something and they don’t do it, is that your fault? A District Court judge in Michigan opted to place blame where it lies, which was not with a collection agency that reported to the credit reporting agencies that a debt was being disputed, because it was then up to the credit reporting agencies to mark the account accordingly. The judge granted the agency’s motion for summary judgment after it was accused of violating the Fair Debt Collection Practices Act for not noting an account was disputed after it received a direct dispute from the plaintiff, because the plaintiff had already filed a dispute through the credit agencies. More details here.
WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: Let’s call this one “The FDCPA Does Not Require Perfection or Light Speed.” (But, Patrick, I hear some of you in the back ask, isn’t the FDCPA a “strict liability” statute? Not exactly, no. And that’s really a topic for another discussion. But for now think bona fide error and materiality and stick with me here. I didn’t have a lot of time to workshop the title.)
This case highlights an area where the plaintiffs’ bar frequently attempts to make hay at the industry’s expense on the theory that collectors must be perfect or act in the blink of an eye: disputes. It’s a low-investment, high-potential-return type maneuver for the consumer since most courts have held that the dispute need not be meritorious to trigger the collector’s obligation to mark the account as “disputed” for purposes of credit reporting. If the consumer can throw the dispute wrench into the collection mechanism at the right time, the theory goes, then the collection process may “misfire” by failing to properly mark the account “disputed.”
A commonly alleged “misfire” is that the collector did not report the dispute to the CRAs quickly enough. Many consumer attorneys seemingly believe this process should happen instantaneously. This of course ignores the practical reality of wading through innumerable consumer disputes (many of which are baseless and interposed for the sole purpose of setting up a “gotcha” FDCPA claim or tradeline deletion). Happily, Federal courts in Michigan have ruled that reporting the dispute within a month of receipt satisfies section 1692e and this particular court bounced this claim, in part, on that basis. The specific analysis may vary by jurisdiction, but this order is helpful authority.
The take-home lesson here is that although you should absolutely endeavor to get disputes processed and reported as quickly as possible to best mitigate your litigation and compliance risk, the process does not necessarily have to resolve overnight. If you find yourself on the business end of a FDCPA “dispute” complaint premised on an alleged failure to instantaneously report an account “disputed” or otherwise act perfectly in this context, consider this order and whether you may have defenses with which to fight back.
Judge Dismisses Six Hunstein Cases for Lack of Standing
In one fell swoop on Friday, a District Court judge in New York dismissed six Hunstein cases for lack of standing, ruling that a recent Supreme Court decision “casts significant doubt on the continued viability of Hunstein” cases, but giving the plaintiffs time to amend their complaints, either in federal or state court. More details here.
WHAT THIS MEANS, FROM JONATHAN HOFFMAN OF BALCH & BINGHAM: Judge Brown is having none of it, and his order, which includes a lecture on abusive plaintiffs’ filings “that have little to do with the purposes of the [FDCPA],” shows the legs of TransUnion LLC v. Ramirez outside of the FCRA and class action worlds. More specifically, Judge Brown picked up the now-famous footnote 6 of Ramirez to say what we’re all thinking: “[Ramirez] appears dispositive of the mailing vendor theory.” In re FDCPA Mailing Vendor Cases proves that Ramirez will be a potent antidote to all kinds of claims, particularly those that seek to turn mere inaccuracies or incidental disclosures into a federal case.
WDWA Judge Partially Denies MTD in FDCPA Case Over Amount of Debt
A District Court judge in Washington has mostly denied a defendant’s motion to dismiss — she did grant it on one count of the claim — in a Fair Debt Collection Practices Act case in which the debt collector was accused of attempting to collect a debt that the plaintiff claimed she did not owe. More details here.
WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT OF NORTH AMERICA: Without getting into the technical details of the different sections and responsibilities under the FDCPA, this case generally puts agencies on notice that we might be more responsible than we think for the data being sent over by our clients. Although the court notes that we still have the bona fide error defense in our back pocket, I believe we’d be more protected if we forged stronger partnerships with our clients. We should be having real conversations about how to capture the history of the debt, open action items, and accuracy of the totals when the data files are sent over. This would reduce the risk upfront. Additionally, if a dispute is raised after placement, there needs to be appropriate procedures in place to address consumer concerns before it turns into a lawsuit. The agency may still be successful after discovery and subsequent motions (as long as their procedures were reasonable). This will be a good case to follow closely to determine reasonableness when we aren’t the system of record.
Appeals Court Overturns $59M Penalty Against Attorneys in CFPB Suit
The Seventh Circuit Court of Appeals on Friday overturned a $59 million award issued against a pair of law firms and four attorneys that were accused by the Consumer Financial Protection Bureau of improperly engaging in the practice of law and collecting advance fees from homeowners in exchange for debt relief services that were not provided. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The decision by the 7th Circuit focused primarily on the question of whether the two law firms, Consumer First Legal Group (where apparently everyone but the consumer comes first) and the Mortgage Group and the four partners/owners of those firms, were providing legal services to consumers. [see below for the Court’s observation as to what practicing law is] The 7th Circuit agreed with both the CFPB and the District Court finding that the lawyers were not engaged in the practice of law. This then led in turn to the Courts finding that the fines/penalties assessed by the district court were excessive.
The penalties part of the District Court Judgment amounted to $34,16.750.00 for the four attorneys and $3,121,500.00 for Consumer First. (The Mortgage Group folded during the pendency of this action which started in 2014.) Restitution was also Ordered, in the amount of $21,709,021.00. That figure was based on the net revenue received by the firms during the violative period. The 7th Circuit nixed the individual penalties and sent the case back to have the District Court re-run the numbers, using a strict liability standard, having found that the lawyers did not act recklessly. The difference is $25,000 a day for reckless behavior versus $5,000 a day under strict liability. If you read the decision you will probably have the same difficulty, I did in understanding how basically the Court found the defendants did not understand that a lot of what they were doing was wrong and harmful. Nonetheless, I am not a math whiz but by my figuring that would reduce the penalties as to the attorneys to a measly $7,458.250. Ouch.
The Court also reduced the restitution amount, relying on Liu v. SEC, 140 S. Ct. 1936, 207 L. Ed. 2d 401 (2020) where SCOTUS found that “that a disgorgement award may not exceed a firm’s net profits.” The CFPB tried to distinguish between restitution and disgorgement. The court’s response was tomato – toe-mah-to, and found the terms interchangeable. The District Court will have to recalculate based on the firms’ net profits.
So, in the end, the offending attorneys will still face significant penalties.
The threshold finding that the firms and lawyers were not engaged in the practice of law, left undisturbed by the 7th Circuit, could prove problematic in the future. The firms’ model was to use non attorneys to perform the intake and review of the individual client’s files, obtain any missing documents according to their checklist and then put together the loan modification applications to be sent to lenders. They had local attorneys (in the various states where the clients were located) perform a perfunctory review of the documents, basically against the check list, before they were forwarded to the banks.
The court determined as a factual matter that “local counsel’s involvement consisted primarily, and in most cases exclusively, of pro forma document review” and that “the role of the local attorney was by design almost always perfunctory, rather than substantive.” As a result, the court concluded that the firms’ local attorneys did not apply “legal principles and judgment to a particular set of facts” and so were not engaged in the “legitimate practice of law.” (at 20)
I predict we will see that language quoted in the future in an argument made by the CFPB or a plaintiff’s counsel regarding meaningful attorney involvement.
This is a case that needs to be read several times to fully appreciate the breadth of the Court’s discussion as I only touched the surface.
Senate Republicans Still Seeking Answers About Report That Administration Tried to Replace Employees at CFPB
Senate Republicans are continuing to try and get answers about whether the leadership of the Consumer Financial Protection Bureau potentially violated civil service protections by trying to get career employees at the Bureau to resign so that they could be replaced by “handpicked loyalists.” After not getting any answers from Rohit Chopra, who has been nominated to be the next Director of the CFPB, Republicans — led by Sen. Pat Toomey [R-Pa.], the Ranking Member of the Senate Banking Committee — have now reached out to Leandra English — a name that might sound familiar — who was on the transition team overseeing the CFPB, asking her what involvement she may have had in the effort to “replace CFPB civil servants with individuals perceived as more loyal to the current administration.” More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: As has become the norm these days, another Republican vs. Democrat inquiry. Did the Democrats target senior-level CFPB career employees by offering incentives or opening investigations to replace such with employees loyal to the Biden administration? The question does not come as a surprise as the CFPB has a history of staff related issues during its brief existence.
During Obama’s administration, the initial staff hires were boarded using an excepted service hiring authority, which circumvented standard federal employee requirements. During the Trump administration, under the leadership of Mick Mulvaney, steps were taken to appoint political appointees to oversee the staff members hired by Obama. The frustration of the oversight resulted in many of the initial staff hires to step down. The vacancies were then filled with those that would be considered Trump friendly.
The actions that occurred prior as well as those accused today, could arguably violate the Civil Service Reform Act of 1978, 5 U.S.C. § 1101 et seq., which establishes a mechanism of permanent federal employment based on merit rather than on political affiliation. Biden repeatedly promised to reverse these types of actions. If the accused actions are found true, it doesn’t appear that this administration is living up to its promises.
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 www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.