Compliance Digest – September 7

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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 Class Action Over Dispute Language in Letter

These days, collectors are being accused as much for what they do not say in collection letters as what they do say. Take, for instance, a case out of the District Court for the District of Connecticut, in which a judge has granted a defendant’s motion to dismiss a class-action lawsuit because it said in a letter what would happen if a consumer disputed a debt in writing, but never said what would happen if the consumer disputed the debt orally. More details here.

WHAT THIS MEANS, FROM LAUREN VALENZUELA OF ACTUATE LAW: The Defendant in this case had included language which was accurate but not required to be in the validation notice pursuant to section 1692g of the Fair Debt Collection Practices Act (“FDCPA”). That language was “[i]f you dispute the debt, or any part thereof, or request the name and address of the original creditor in writing within the thirty-day period, the law requires our firm to suspend our efforts to collect the debt until we mail the requested information to you.” Since the Defendant added this language, the Plaintiff seized on the opportunity to claim that the “Defendant should have clarified that, at the very least, a verbal dispute would be insufficient to trigger such cessation of debt collection efforts.” The court pointed out that the Plaintiff did not cite any authority for this “novel proposition.”

This case is a good reminder at how creative plaintiffs’ arguments are to squeeze any juice they can from the FDCPA. However, this case turned out to be no lemon when the “least sophisticated consumer” standard came to the rescue! As the court explained, to determine whether a collection notice is false, deceptive, misleading under the FDCPA, many courts will apply the least sophisticated consumer standard to analyze a notice. This standard presumes that a consumer possesses “‘a rudimentary amount of information about the world and a willingness to read a collection notice with some care” and “‘[u]nder this standard, a collection notice may violate the FDCPA when it is sufficiently ambiguous to give rise to a reasonable, but inaccurate, interpretation.’” On balance, however, this standard also recognizes that “‘the FDCPA does not aid plaintiffs whose claims are based on ‘bizarre or idiosyncratic interpretations of collection notices’” (citations omitted). Applying this standard, the court concluded that the Plaintiff had “failed to state a claim” under the FDCPA. Although the Defendant was victorious in this case, section 1692k(a)(3) of the FDCPA prohibits defendants from recouping reasonable fees and costs unless a court finds an action was brought in “bad faith and for the purposes of harassment.” The practical effect of this structure means that “novel propositions” will continue to thrive at debt collectors’ expenses. With Regulation F soon to go into effect, we should all brace for impact regarding any modifications made to the CFPB’s model validation notice.

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Judge Grants MSJ in FDCPA Case Over Disclosure in Letter

Is there a way for a debt collector to structure a collection letter to make it appear that it is mandatory for the consumer to dispute the debt? Or that disputing a debt and making a payment are mutually exclusive? In a case that was defended by Rick Perr of Kaufman Dolowich & Voluck, a District Court judge in Colorado has granted a defendant’s motion for summary judgment after it was accused of violating the Fair Debt Collection Practices Act by doing just those things. More details here.

WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: As has been said all too often over the years, this is a “lawyer’s case” of which only a “sophisticated lawyer, not the least sophisticated consumer, would conceive.” In Garrett, plaintiff sued complaining of a cautionary statement in an initial collection letter: “Calling for further information or making a payment is not a substitute for disputing the debt”. According to plaintiff, this statement was misleading as implying that a dispute of the debt was mandatory, rather than optional. Further, he contended that the language overshadowed the required 1692g notice placed on the second page of the letter, inconsistently suggesting that disputing the debt was mutually exclusive to making a payment. Quite the stretch in my view. Thankfully, the Judge agreed finding that “[p]laintiff’s reading only can be reached by inserting additional language into the letter, something which the Court may not do.” Further, the Judge rejected the contention that the language insinuated that disputing the debt was mandatory, a proposition the judge categorized as “illogical.’ All in all, this case serves as a nice remainder that “bizarre” or “idiosyncratic” interpretations of collection letters remain insufficient to support a FDCPA violation.

Judge Grants MTD on All Claims But One in FDCPA Class Suit

A District Court judge in New Jersey has granted a defendant’s motion to dismiss on all counts but one in a class-action Fair Debt Collection Practices Act case, ruling that the allegations that the amount of a debt was mis-stated in a letter can not be ruled on at this stage in the process. More details here.

WHAT THIS MEANS, FROM JACQUELYN DICICCO OF J. ROBBIN LAW: The District Court of New Jersey recently affirmed long-standing precedent holding despites a debtor’s allegation of not knowing who the current creditor was the Creditor’s statement that it owned the debt was not a false, deceptive, or misleading statement. In Saldana v. Resurgent Capital Services, LP, at Case No.: 2:20-cv-01879, the debtor incurred a debt from Comenity Capital Bank (“Comenity”) some time prior to October 8, 2019, which was then placed with Resurgent Capital Services, LP (“Resurgent”) for debt collection. On or about October 8, 2019, debtor alleges that Resurgent mailed debtor a letter indicating that LVNV Funding, LLC (“LVNV”) owed the debt and listing a purportedly incorrect amount of debt owed (“Collection Letter”). Debtor argued that the letter violated the FDCPA by making false, deceptive or misleading representations in connection with the collection of the debt and by seeking to collect a debt by an entity that debtor purportedly did not owe a debt to because: (1) the Collection Letter failed to convey, from the least sophisticated consumer perspective, the correct amount of debt owed; and (2) that LVNV was not the owner of the debt. Resurgent moved to dismiss. In a lengthy and thorough decision, the New Jersey District Court held that a debt collector is “not specifically required to state in the written notice how the debt collector received the account that it is attempting to collect” and that the letter clearly stated the identity of the current owner of the debt (LVNV), regardless of how LVNV came to own it. Notably, however, the Court did hold that the debtors mere allegation that it did not owe the debt allowed the case to proceed on the claim that the amount owed may amount to a false representation. As a result, this case further demonstrates that while courts continue to try to limit the reach of the FDCPA, courts still allow conclusory statements of not owing a debt to be sufficiently pled to avoid a motion to dismiss.    

Judge Denies Plaintiffs’ Motions to Remand Hunstein Cases Back to State Court

A District Court judge in Illinois has denied motions in two separate Hunstein cases seeking to remove cases back to state court, ruling that the plaintiffs have alleged to have suffered concrete harms and thus have standing to sue in federal court. Both cases were originally filed in state court, but were remanded to federal court at the defendants’ requests. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: The Eleventh Circuit’s decision in Hunstein and the Supreme Court’s notorious footnote in Ramirez continue to present interesting litigation strategy considerations. In some instances, litigants are arguing successfully that there is no Article III standing. But as a reward, they may find themselves being re-sued on the same federal claim in state court. In other instances, as in these two recent Illinois decisions, there is sufficient Article III standing on the exact same claim, thereby allowing defendants to remain in federal court to litigate the FDCPA claims brought against them.  Already, federal courts are diverging on whether there is or is not Article III standing for these claims and I fear that could have larger and lasting impacts for future claims – not just those involving Hunstein but perhaps privacy and other tort claims.

Judge Rules for Defendant in Third-Party Disclosure Case

It might not be a Hunstein case, but a District Court judge in Missouri has granted a defendant’s motion for judgment on the pleadings after it was sued for allegedly violating the Fair Debt Collection Practices Act by disclosing the existence of a debt to a third party — in this case a bankruptcy attorney who received a letter from the defendant in regards to a debt for a consumer he was not representing. More details here.

WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This is an unusual case involving a bankruptcy attorney who sued the collector directly based on the allegation that the collector’s letter regarding a consumer was somehow “abusive” and “harassing.” The attorney-plaintiff had represented many consumers in bankruptcy proceedings but hadn’t represented this particular consumer. I supposed you could call this a creative or bold attempt on the part of the attorney-plaintiff to create his own personal claim for damages under the FDCPA. Thankfully, the court rejected the attorney’s arguments out-of-hand. In finding that the attorney didn’t have standing to sue on behalf of himself, the court aptly concluded that the attorney wasn’t protected by the statute, focusing on the FDCPA’s purpose to “protect consumers against debt collection abuses” who are “obligated or allegedly obligated to pay any debt.” 

Plaintiffs Seeking to Overturn Nevada Medical Collection Law File Motion to Amend Complaint

The plaintiffs in a suit that was filed seeking to overturn a new medical debt collection law in Nevada have filed a motion to amend their complaint, seeking to add in a new argument that the law creates a false sense of urgency in violation of the Fair Debt Collection Practices Act. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: This law could have been even worse. Industry groups were successful in securing some important amendments before S.B. 248 was enacted, but despite their efforts they were unable to fix all of the problems with this law. The plaintiffs’ original complaint alleges that several parts of the law violate the United States Constitution and conflict with the FCRA, the FDCPA, and another Nevada statute. The plaintiffs recently moved to amend that complaint to include allegations that the law’s certified-mail requirement also conflicts with the FDCPA and would result in consumer harm. 

Appeals Court Upholds Ruling for Insurance Company Against Debt Collector

A ruling that should have every debt collector going through their insurance policies to make sure they have the proper coverage … The Court of Appeals for the Eighth Circuit has affirmed a lower court’s ruling in favor of an insurance company that was being sued by a law firm that was accused of violating the Fair Debt Collection Practices Act, ruling that the policy the law firm obtained did not cover it from the allegations made by a consumer who sued the firm. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Insurance companies always try to find any loophole they can to deny claims and this time they were successful. With the proliferation of class action defense insurance, TCPA insurance, etc., companies should carefully review coverage definitions or even ask an attorney the likelihood claims will be covered.

Alleged $150M Payment Processing Scheme Included Debt Collection Transactions: Prosecutors

A quartet of individuals have been charged with conspiracy to commit wire fraud and conspiracy to commit bank fraud in a $150 million payment processing scheme that included facilitating transactions for debt collectors, and one of the individuals remains at large, according to an indictment that was unsealed yesterday in Massachusetts federal court. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: This indictment reinforces to consumers that solely because a national bank or global credit card network is affiliated with a merchant, such an affiliation does not prove that the merchant is legitimate. Allied Wallet and its four affiliates (Ahmad Khawaja, Mohammad Diab, Amy Rountree, and Thomas Wells) are alleged to have participated in a scheme to defraud financial institutions, card networks, and others by providing payment processing services to merchants engaged in high-risk or prohibited transactions and to merchants that were previously terminated for fraud or other compliance concerns, such as online gambling, debt reduction services, prescription drugs, and payday lending companies.

The pending claims against Allied Wallet and these individuals are consistent with an FTC settlement in July 2019 against the company and individuals for knowingly processing fraudulent transactions to consumers’ accounts.  While this has been an ongoing scheme since 2019, there has been uptick in fraud since the beginning of the pandemic paralleling an increase in enforcement actions from federal and state regulators. All industries and companies of varying sizes are susceptible to fraud and stakeholders must remain vigilant in detecting and preventing fraud.

Judge Grants MSJ For Defendant in FDCPA Case Over Statement in Letter That Was Never Read

If a tree falls in the forest and nobody is around to hear it, does it make a sound? Similarly, if a statement in a collection letter allegedly violates the Fair Debt Collection Practices Act, but the recipient of the letter testifies that she doesn’t recall ever seeing it, does it break the law?  More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: This decision highlights an important legal principle, that a litigant (plaintiff) must establish some injury-in-fact in order to prevail on a lawsuit. In letter cases, how would a consumer be injured by an alleged misrepresentation? For starters, if he or she reads the written statement and justifiably relies on it.

That did not happen in this case. Here, the plaintiff (Ms. Oh) testified that she never read the collection letter that was sent to her. (Ancillary to this testimony, she also stated that English was not her primary language and thus could not have understood the letter even had she read it.) Without having read the letter in question, a plaintiff cannot then assert that she was misled by its contents. Without an actual misrepresentation (requiring an individual to be misled), there can be no claim under the FDCPA.

The beauty of this ruling is that technical claims bound only in the contents of a collection letter are not enough – a consumer must further provide evidence that he or she 1) read the language in the letter, and 2) justifiably relied on that language to his or her detriment. We have been seeing a large expanse of caselaw requiring consumer litigants to prove some concrete injury in fact in order to survive dismissal of their claims, and we can add this to the list.

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.


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