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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.
Judge Grants MTD in FDCPA Case Over Legal Action Warnings in Letters
A District Court judge in New York has granted a defendant’s motion to dismiss, ruling that the language that was used in a series of letters that raised the possibility that the plaintiff would be sued if she did not make arrangements to repay her debt did not violate the Fair Debt Collection Practices Act, ruling that while the letters contained “some urgency,” they did not indicate that legal action was “authorized, likely, and imminent.” More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: While this case turned out favorably for the debt buyer, it highlights something we always look carefully in letter audits and that is the suggestion of legal action. From a compliance perspective, wording is so critical and these letters reflect the importance of couching possible litigation in terms that are less than certain. Words like “may,” “now considering,” and “possible attorney review” ultimately carried the day in favor of the debt buyer, but would this case have been filed if there had simply been one letter not three? I doubt it. It’s a little like the boy who cried wolf. The more letters in the series suggesting suit is a possibility or that the file may be sent to an attorney, the more likely the debt collector is to get sued under 1692e(5) and the more likely that the statement will be called into question as being false, deceptive or misleading or not intended to be taken.
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Collection Agency Defeats MTD in Suit Against S.C. AG Seeking to Overturn Anti-Spoofing Statute
In what is certainly a first for me, a collection agency — which is represented by The Echols Firm — has defeated a motion to dismiss a lawsuit for lack of standing. But this is not a run-of-the-mill Fair Debt Collection Practices Act suit. In this case, the agency is fighting to overturn a state law in South Carolina that requires anyone who calls into South Carolina using a South Carolina number on their Caller ID to have a local presence in that state. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This is an interesting and unusual case. Debt collectors and Attorneys General are by no means infrequent adversaries. However, such disputes typically has the Attorney General on the plaintiff side, with the debt collector as the defendant. Here, the normal roles are reversed.
A debt collection agency, United Resource Systems, Inc. (URS) sued the Attorney General of South Carolina, seeking a declaration that South Carolina’s anti-spoofing statute (which prohibits non-South Carolina callers from displaying a South Carolina area code on the call recipient’s caller ID) is unconstitutional. The Attorney General responded to the Complaint by filing a Motion to Dismiss based on an argument which is very familiar to the collection industry — lack of Article III standing, i.e., lack of the right to bring the case in the first place based on a theory that URS has allegedly not been “harmed” by the statute. As the Supreme Court recently stated in TransUnion v. Ramirez, “to have Article III standing to sue in federal court, plaintiffs must demonstrate, among other things, that they suffered a concrete harm. No concrete harm, no standing.”
Thankfully, the Court denied the Attorney General’s motion to dismiss, and held that URS indeed has Article III standing to seek an adjudication about the constitutionality of South Carolina’s anti-spoofing statute. Therefore, the lawsuit filed by URS has survived the pleading stage and has survived the standing challenge.
So, what next? The ultimate question in the case (whether or not the anti-spoofing statute is constitutional) has not yet been answered. That is the major issue to be argued by the parties in the case. There are many issues with regard to the use of a local caller ID to call into another state when a business does not have a physical presence in that state. However, one of the arguments is that if the numbers are owned or leased by the agency at issue, they claim the numbers belong to them and that they have a constitutional right to use it under the law. There is support for this argument under the law.
Debt collectors without a South Carolina office, but who nevertheless call into South Carolina using local caller id should monitor the outcome of this case.
Judge Grants Defendant’s Motion for Sanctions in FDCPA Case
A District Court judge in Mississippi has granted a defendant’s motion for sanctions and ordered the plaintiff’s attorneys to repay the defendant for 16 months of legal fees in a Fair Debt Collection Practices Act case. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: Deciding to seek attorney’s fees from opposing counsel under Rule 11 is not an easy decision or one that can be made without regard for how that effort may shape future demands and interactions. Nor are Rule 11 fee awards something that courts liberally or regularly grant. As a result, defendants prevailing in matters involving even obviously frivolous claims often do not jump at the chance to invest additional resources to chase an uncertain recovery of already sunken costs. Some simply decide this does not make business sense and the expended fees are chalked up to being a “cost of doing business.”
But as this decision demonstrates, when there is indisputable, unrebutted evidence that a claim is frivolous, maybe give it a try if opposing counsel refuses to dismiss with prejudice. I mean, that is what is required by Rule 11 and the rules of professionalism – you brought what turned out to be a bad case and now you have an obligation to unwind that unfortunate circumstance to maintain the integrity of the our legal system. But every day, members of the receivables industry wade through an unending barrage of template demands and complaints that often haven’t even been edited well enough by counsel to remove information from prior filings. Sure, mistakes happen. Consumers may not give you “all” the facts. But with serial offenders, motions like this can send a strong and potentially advantageous message. And you might even prevail! So, be thoughtful and strategic in pursuing such claims – but perhaps don’t discount them entirely as a strategy.
Judge Rules State Right-to-Cure Law Preempted by National Bank Act in FDCPA Case
A District Court judge in Wisconsin has granted a defendant’s motion for partial summary judgment in a Fair Debt Collection Practices Act and Wisconsin Consumer Act case that accused the defendant of misrepresenting the level of attorney involvement and accelerating the debt and filing suit against the plaintiff without first giving him a right to cure as required under Wisconsin state law. The judge ruled that banks are pre-empted from having to follow the right-to-cure provisions of the state law in question and that debt buyers are assigned the same rights when purchasing accounts from national banks. More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This case involved both standing and federal preemption issues. The Seventh Circuit is currently a hotbed for dismissals based on lack of standing. I find it interesting that, in this case, the Court found that the plaintiff had standing, citing to the “costs, time, and energy incurred in defending against the [state court collection] suit brought against him” as a concrete injury in fact. Generally, courts reject claims that the costs and time incurred in litigation can amount to an injury in fact, but this Court made a nuanced distinction between the costs incurred by a consumer when bringing a FDCPA action and the costs incurred by a consumer when defending against a collection action. In finding standing, the Court acknowledged it was a “close” call. The other significant issue in this case was the Court’s analysis of federal preemption. The Court concluded that Wisconsin’s statutes related to its right-to-cure provisions were preempted by the National Bank Act. The key takeaway here was that because the creditor wasn’t required to comply with the subject state statute, the debt collector assigned the debt was “likewise exempt.” It’s worth noting that the Court took the relatively rare step of certifying both the standing and preemption questions to the Seventh Circuit Court of Appeals for interlocutory review because of “the closeness of the question as to plaintiff’s alleged standing in light of recent case law” and the “importance and novelty of the preemption issue presented[.]” We’ll have to watch and see how this case plays out.
Court Upholds $286k Ruling Against Plaintiff in TCPA Action Over Collection Calls
A District Court judge in New Jersey has granted a credit card company’s petition to confirm an arbitration award in the amount of $286,064.62 against an individual who had accused the company of violating the Telephone Consumer Protection Act by placing hundreds of debt collection calls to his phone without his consent. The individual had filed an arbitration claim against the company, and the company filed a counterclaim accusing the individual of fraud and and breach of contract. More details here.
WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: I think most agencies have been targeted with baiting claims – the consumer has manufactured a legal claim, usually under the FDCPA, by tricking a debt collector into making a misrepresentation on a call. This is not your typical grandparents’ baiting claim, but instead goes well beyond the pale, and really smells of fraud. The plaintiffs are a husband and wife team who sought to fabricate a TCPA violation. To accomplish their scheme, the husband opened a credit card in his wife’s name, using her social security number and date of birth, and her mobile telephone number. Once they racked up charges and didn’t pay their bills, the wife (not surprisingly) began to receive collection calls on her phone. In crafting the scheme, what the couple probably failed to do was read the fine print in the credit card agreement, which mandated binding arbitration to resolve any legal claims. The card issuer compelled arbitration of the TCPA claim, and also asserted its own counter-claim for fraud, misrepresentation, breach of contract, and several other related claims, ultimately seeking reimbursement of its fees associated with defense of the lawsuit. As anybody who has defended a TCPA lawsuit can attest, these are expensive propositions and the attorney fees can become quite large.
The happy ending to the story (at least, from our industry’s perspective) is that the arbitrator found that the plaintiffs acted in bad faith, artificially fabricated their TCPA claims, and that the creditor did not act improperly. The consequences for the plaintiffs were dire – they were ordered to pay the card issuer for its attorneys fees and costs associated with the lawsuit/arbitration, a whopping $286,640.62.
Another compelling factoid in the case – according to the arbitrator’s decision, the plaintiffs had manufactured several other claims against other card issuers and those TCPA settlements constituted about 30 percent of their household income. Professional litigants, it seems. On the personal culpability side, the husband also apparently had been convicted of securities fraud in the past.
Judge Grants Petition from CFPB to Enforce $50M Order Against Payday Lender, CEO
A District Court judge in Kansas has granted a petition from the Consumer Financial Protection Bureau to enforce an administrative order that assessed more than $50 million in fines and restitution against an online lender and its chief executive, even though the order has been appealed to the Court of Appeals for the Tenth Circuit. More details here.
WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: In CFPB v. Integrity Advance, the U.S. District Court in the District of Kansas granted the CFPB’s petition to enforce an administrative order against a payday lender and its CEO in the amount of nearly $51 million, including civil money penalties. The court noted that the administrative order required the defendants to either pay the amounts required to the CFPB or, in the event of appeal, deposit that amount in an escrow account pending the appeal. The defendants did neither. The company failed to appear in this proceeding, so was deemed not to oppose the relief sought by the CFPB. As to the company’s CEO, the court held that it lacked jurisdiction or authority to take action with respect to the administrative order, and instead that authority is granted exclusively to the appellate court – the 10th Circuit in this case. Because the defendants did not petition the 10th Circuit for the relief sought, and the District Court determined it lacked authority to delay enforcement, it granted the CFPB’s petition. Recognizing the District Court’s hands were tied, this case demonstrates the importance of understanding relevant procedural requirements and ensuring those procedures are followed. Failing to do so can, as demonstrated by this case, be costly.
D.C. Council Passes Amended Debt Collection Law
Thanks to ACA International for first reporting that the Washington, D.C. City Council yesterday unanimously passed an updated version of its emergency debt collection bill with a few new amendments, and the bill will go into effect next month when other restrictions put in place at the start of the COVID-19 pandemic are set to expire. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF CLARK HILL: Although the District of Columbia (“DC) lifted its executive order and public health emergency on July 24, 2021, its City Council with the full support of Attorney General Karl Racine approved legislation to “modernize” DC’s debt collection law on August 3. We previously noted that an emergency piece of legislation continued restrictions on debt collection for an additional 90 days. The legislation passed on August 3 replaces that. As industry approaches the 100 day countdown to the Reg F enforcement deadline, a few features of DC’s law should be considered: a) instead of the Reg F “seven in seven,” DC’s law calls for “three in seven” but expressly excludes calls a consumer initiates or requests; b) a collection agency must be prepared to provide detailed itemization if collecting credit card debt, measured from the charge-off balance and including the charge-off statement and most recent monthly statement recording a consumer’s purchase transaction, payment or a balance transfer; c) debt collectors must fully identify debt information in their notices to consumers such as the name of the original creditor and current creditor; d) fines for violations may include a penalty of not less than $500 nor more than $4000; and e) the legislation would take effect September 21, 2021. Although Mayor Muriel Bowser is expected to sign the legislation as amended – she has not yet done so.
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.